Negative Cash Flow: 6 Things This Company Did Wrong and How to Avoid Them

Ever wondered why some businesses barely stay afloat? Here’s a case of a company that managed to survive, but just barely. Here’s what they did wrong and how you can avoid the same mistakes:

1. They Refused to Budget or Forecast
In 2023, they were set up on a financial modeling app for forecasting and budgeting. They abandoned it. Without a solid budget or forecast, you’re flying blind.

2. Incorrect Budgeting Methodology
Then in 2024, they were advised to use simple budgeting in Xero. They combined the budgets of two business entities in an Excel spreadsheet, constantly taking from one to pay the other’s bills. Always budget by entity to maintain clarity.

3. They Spent Money They Didn't Have
The CEO went on a two-month conference spree in the US that wasn’t in their budget, cutting into cash needed for contractors and bills. Assuming future profits will cover unplanned expenses is a risky move.

4. Eyes Bigger Than Their Wallets
Their revenue slightly decreased, but spending increased by 46%. Direct costs only increased by 17%; the rest was due to company expenses. Keep your expenses in check and align them with your revenue.

5. Failing to Prepare Is Preparing to Fail
Their short-term cash forecast declined by 82%, meaning their runway disappeared. Always have a backup plan and prepare for the unexpected.

6. They Didn’t Listen to Professional Advice
Throughout these challenges, they received guidance and advice to help them steer clear of these pitfalls. Unfortunately, they often chose to ignore this advice. Listening to and implementing CFO recommendations is crucial for financial health and stability.

Summary

Learning from these mistakes can help ensure your business doesn’t face the same cash flow challenges. Stay proactive with budgeting, spend wisely, and always plan for the future. (Verte Consulting can help with that - if you take the advice 😉)