If the "Net Change" section of your cash flow statement has a negative balance, it could mean that your business is about to go out of business. You need to pay attention right away, because if you don't stop this bad trend, your business will run out of money.
There are five parts to a Cash Flow Statement:
- Get paid
- Cash on hand at the start
- Get paid
- Cash Balance at the End: (Net Change + Cash Balance at the Start)
- Net Change: (Cash In - Cash Out)
There are only two ways to fix a negative balance in the "Net Change" section: Increase the amount of money coming in (revenue) or decrease the amount of money going out (expenses) as shown below:
To make more money:
- Don't give out credit too easily. If you can, ask for references or a credit check.
- Offer discounts: Give your customers a reason to pay you in cash by giving them a discount. For instance, giving a 2% discount on cash purchases could help you get the money you need. Also, give discounts to customers who pay their debts within 10 to 30 days. This will lower the amount people owe you (receivables).
- Don't work with some clients. Don't work with clients who pay late or don't pay their debts. Instead, only work with clients who pay on time. This is the fastest way to get more money from people.
- Follow the "Same-Day Rule," which says that you should send invoices to your clients as soon as you finish a job. Cash all of the checks you get on the same business day at the same time.
How to cut costs and decrease spending:
- Cut down on your stock. Stock is not cash! As long as you have stock that hasn't sold, you don't have cash on hand. It is important to have as few items as possible in stock.
- Barter: You could use barter instead of cash if you have friends who work in different fields. For example, if you own a landscaping business and a friend works at a printing press, you could offer free landscaping services in exchange for printing services.
- Look closely at ALL of your expenses. If you look closely at all of your expenses, you might find some that aren't necessary.
Tip: Try to spend as little as possible! Check out the expenses column on your cash flow statement. Often, small things that aren't very important look like they don't matter. But even a few dollars saved each month will add up to a lot over time.
