It has been said that cash flow is among the most important factors in determining a company’s success. And it’s not just any type of cash flow – it is positive cash flow that is the key.
A business simply must be taking in more than it is putting out in order to stay afloat. When negative cash flow takes over, drastic and swift solutions must be found. As your cash flow changes, it will also change your company’s position from period to period. It affects the profit-and-loss adjustments, business plans, and annual budgets.
Here we’ll take a look at the difference between positive and negative cash flow, how much of an impact it has on your company, and ways you can get out of a negative cash flow situation and get your business back on track for success.
What is Cash Flow?
In very simple terms, cash flow is the amount of money that is coming in and out of your business. Cash flow affects the liquidity of your business. No matter how big or small a business is, or what industry it is in, cash flow is always a factor.
The more cash a business has, the better and stronger a position it is in because you have more buying power. If you have strong positive cash flow, it shows that you have a stable business that is generating cash.
Looking at cash flow a little closer, there is also positive and negative cash flow. As mentioned, for cash flow to be positive the business must be bringing in more money than it is spending or sending out. There needs to be cash leftover. In a negative cash flow situation, the expenses are totalling more than the cash coming in. This can make it hard to have that same buying power as the company doesn’t seem as stable and strong.
Cash Flow Makes Growth Possible
Another factor to consider about cash flow is that it makes growth possible. It’s very hard to grow your business, offer new products/services, open new locations, buy new equipment/supplies/machinery, and hire additional staff if you don’t have the cash to pay for it all. It’s really a double-edged sword – in order to make more money you need to grow, but in order to grow, you need more money.
There is also the fact that you need that cash in your account just to deal with the day-to-day operating expenses, wages, etc. If you are suddenly unable to pay your employees, then business will grind to a halt and you’ll be in an even deeper situation. There is also the payment of suppliers, which is vital to your operations. If you are suddenly not able to keep up with their payments, you can bet you’ll run out of supplies real fast.
How to Deal with Negative Cash Flow?
Obviously, it’s best to maintain a positive cash flow position but, unfortunately, that’s not always going to be the case. New start-ups especially have a hard time staying in the positive column and often find themselves shelling out more money than is coming in. So what can you do when you’re in that negative cash flow position? You can’t risk losing staff, suppliers, and customers, so a quick solution is key.
This is when you may want to consider something like a merchant cash advance. It’s important to state that these cash advances are quite different from a business loan. There is no fixed payback schedule, the repayments are actually in line with your future card sales, and you can finance small and large amounts. Because this isn’t a traditional loan, the approval process is much faster too. If you’re in need of cash fast, this can be an important deciding factor.
The way a merchant cash advance works is that you receive a cash advance against your future credit card sales. You are then paying back the money based on your future card transactions, which makes the repayment terms affordable.
Merchant Money is an excellent example of a company that is offering this kind of quick and effective cash relief to businesses. You can go to https://www.merchantmoney.co.uk/merchant-cash-advance/ to learn more about the merchant cash advance option, as well as the other solutions available through Merchant Money.
This type of solution works especially well for companies that need to be able to pay back the money on their own schedule. Traditional business loans with a set repayment amount can end up putting a lot of stress on a company that is struggling with cash flow, and actually cause the situation to become worse.
Looking Outside the Traditional Solution
A merchant cash advance may just be exactly what your business needs to get out of a negative cash flow situation and give it the flexibility it needs to get into a positive cash flow position once again.