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Warning
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Simple English definitions for legal terms
negative cash flow
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A quick definition of negative cash flow:
Negative cash flow is when a business spends more money than it makes. This means that the business is losing money instead of making a profit. It is not a good situation for a business to be in because it can lead to financial problems and even bankruptcy. Cash flow is important for a business because it helps to pay for expenses like rent, salaries, and supplies. If a business has negative cash flow, it may need to find ways to increase its income or reduce its expenses to avoid financial trouble.
A more thorough explanation:
Negative cash flow is a financial situation in which a business or individual is spending more money than they are receiving. It is the opposite of positive cash flow, which occurs when a business or individual is receiving more money than they are spending.
- A business spends $10,000 on expenses in a month, but only receives $8,000 in revenue. This results in a negative cash flow of $2,000.
- An individual spends $2,000 on rent, utilities, and groceries in a month, but only earns $1,500 in income. This results in a negative cash flow of $500.
These examples illustrate how negative cash flow can occur when expenses exceed revenue or income. This can lead to financial difficulties and may require the business or individual to take action to improve their cash flow, such as reducing expenses or increasing revenue.