Cash-negative

Describing a financial situation where a business or investment's cash outflows exceed its cash inflows over a specific period. This means more money is spent than earned from operations, requiring the company to use existing cash reserves, borrow money, or secure additional funding to cover its expenses. Prolonged cash-negative periods can jeopardize a company's financial stability and potentially lead to bankruptcy if not addressed promptly.

Cash-negative meaning with examples

• The startup, heavily reliant on venture capital, was cash-negative for its first three years, burning through investor funds to build its product and acquire customers. This meant they struggled to balance their outgoing costs and incoming revenue. Eventually, they found they had to rely on increased funding, which was risky for long-term stability.
• During the recession, many small businesses found themselves cash-negative as customer demand plummeted and expenses remained relatively fixed. Reduced sales revenue created difficulties, and they had to make difficult choices to cut costs or cease operations. Some were forced to take out short-term loans.
• The film studio's blockbuster movie, despite high gross revenue, became cash-negative due to excessive marketing spend. This meant that the overall budget required the use of existing funds. The studio was left hoping the success of its merchandise would offset their spending.
• A large-scale construction project was cash-negative in its early stages because of significant upfront investment in materials and equipment. Paying their staff and buying materials ate up the cash, but once the buildings started generating revenue, this would change. However, there were risks in the short term.
• Investing in new equipment can make a business cash-negative temporarily. A company's overall revenue may not change immediately; therefore, the initial costs of the assets may reduce their revenue. This may cause problems for businesses if their cash flow reserves run low, or if it is difficult to secure a loan.