What is negative cashflow?
Negative cashflow is when a business spends more money than it makes within a given period of time. Although it might sound worrying, it’s actually pretty common. In fact, it’s almost inevitable that small businesses will experience cashflow issues from time to time, particularly during their early days.
This being the case, it isn’t a major cause for concern as long as it’s not happening regularly, and you have contingency plans in place for when it does.
What causes negative cashflow?
Negative cashflow has numerous possible causes, some of which are out of your hands as a small business owner. That’s why it’s occasionally unavoidable. These include:
- Low profits
- High overheads – e.g. rent, utility bills, legal fees
- Unexpected expenses– e.g. equipment failure, tax bills, increased supplier costs
- Overinvestment in non-business critical areas
- Expanding too quickly
- Late customer payments
Having said all this, there are several things you can do both to manage negative cashflow and to prevent it from happening in the first place. Let’s take a look at them now.
Five tips to manage negative cashflow
Be mindful of spending and reduce expenses where possible
Before you splash the cash on shiny new laptops for your team or an arty marketing campaign nobody will understand, ask yourself if the money could be better spent elsewhere – or whether it even needs to be spent at all.
Similarly, it’s worth regularly reviewing your ongoing expenses to see where savings might be made. Are you paying too much for office space? Could you get a better deal on your insurance? Does the IT guy you’ve just hired really know what he’s doing? Maximising efficiency now can help you avoid the pain of negative cashflow further down the line.
Make full use of your accounting software
As we’ve already seen, late-paying customers are a common cause of negative cashflow. While your accounting software can’t make them pay on time, it will likely have features such as automated reminder emails to help minimise the chances of this happening.
Create regular cashflow forecasts
A good cashflow forecast can help you see gaps in your cashflow before they become reality. While this may not always give you time to prevent them happening, it will at least allow you to plan for them in advance.
We’ve created a handy cashflow forecast template for you to use, which you can download here.
Have a business savings account for the unexpected
Just as it’s a wise move for individuals to create an emergency fund for unexpected expenses, so it is for small business owners. At the end of the day, it’s always better to put out financial fires with money you’ve saved than having to borrow someone else’s.
A Business+ Saver Account can give you peace of mind for times when negative cashflow rears its head. You can open one in minutes online or in the Business+ app and enjoy:
- $0 monthly fees
- Competitive interest rate
- Bonus interest when eligibility criteria are met
Consider cashflow finance
Regardless of how financially responsible you are, there’s always a chance you’ll need a cash injection to get through an unexpectedly difficult time or just to manage seasonal changes to your expenses. This is when you might want to consider a Business+ Unsecured Loan or Business+ Unsecured Overdraft.
Here’s a quick look at the benefits of each:
Business+ Unsecured Loan
- Competitive interest rate
- Access up to $50,000 without using your assets as security
- Fixed interest rate means your repayments don’t change over the life of the loan
Business+ Unsecured Overdraft
- Competitive interest rate
- Interest is charged on your balance, not your total limit
- Access up to $50,000 without using your assets as security
We’re here to help
Great Southern Bank’s Business+ app is designed to make your life easier. Download it today and manage your business’s finances from the convenience of your phone.
Also, don’t forget to check out our Business Hub. You’ll find heaps of free resources and plenty of helpful information to keep your business humming.
