Your business might be heading towards bankruptcy if it has a negative balance on its ‘Net Change’ section of its cash flow statement. Immediate attention is required as failing to correct this negative trend will inevitably cause your business to run out of money.
A Cash Flow Statement has five sections:
1. Beginning Cash Balance
2. Cash In
3. Cash Out
4. Net Change: (Cash In – Cash Out)
5. Ending Cash Balance: (Net Change + Beginning Cash Balance)
In order to correct a negative balance in the ‘Net Change’ section, you only have two options: Increase the amount of cash coming in to your business (revenue), or reduce the cash going out of your business (expenses) as shown below:
To Increase Revenue:
1. Offer discounts: Establish incentives to encourage your clients to pay you in cash. For example, offering a 2% discount on cash purchases might help you receive much-needed cash. In addition, offer discounts to clients who pay their debts within 10 to 30 days; this will reduce the amount people owe you (receivables).
2. Avoid some clients: Avoid clients who are slow payers or who do...
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