What is a Negative Cash Flow?

Mary McMahon
Mary McMahon

When a company spends more than it receives during a set period of time, typically a quarter, the company is said to have a negative cash flow. This is often viewed as an indicator of financial ill health by people who are assessing companies to determine whether or not to invest in the company. Many things can influence cash flow, however, and one that's negative should not necessarily be seen as a black mark.

Established businesses with dwindling customers experience negative cash flow because they must still pay for overhead costs.
Established businesses with dwindling customers experience negative cash flow because they must still pay for overhead costs.

Publicly traded companies send out documentation of their financial circumstances to their shareholders so that the shareholders can get an idea of how well the company is doing. This documentation typically includes a cash flow statement, which breaks down the cash inflow and outflow and shows the net change in cash flow, which can be positive or negative. The cash flow statement typically includes operating, financing, and investing activities, each of which can be positive or negative.

Succesful businesses may temporarily have negative cash flow when they purchase new inventory.
Succesful businesses may temporarily have negative cash flow when they purchase new inventory.

The operating activities of a company involve the company's core purpose, such as selling a product or service, and they usually generate a cash inflow. Financing activities involve the exchange of funds between a company and creditors or debtors, and they may be positive or negative. For example, a company servicing debt would be paying out a lot, while a company that had just financed a major endeavor might have a positive flow of cash. Likewise, a company that just paid a dividend to shareholders would probably record a negative number in this column. The investing activities refer to the company's investment in other companies and goods, or to investments made in the company by others.

When a company records negative cash flow, it may be because the company is struggling, or it may be because the company had a number of expenses that upped outflow. Cash flow is not necessarily always linked to profit, and companies can actually record a negative one for several periods and still be profitable. Of greater concern are radical changes in cash flow between periods, or a consistent and prolonged negative period, which suggests that a company may be overreaching.

The term “negative cash flow” can be used in reference to personal finance as well as the corporate world. When people experience this as individuals, it means that they are spending more money than they are earning, which can result in long term debt and serious financial problems.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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Discussion Comments


Bhutan-Some companies file for bankruptcy if the statement of cash flow is deficient enough. Often businesses file for bankruptcy and have to determine if the company will be liquidated completely or reorganized to continue surviving.

Chapter 7 bankruptcy is filed when the business will terminate and no longer exist. In this case the debt and operating cash flow is so deficient that there is no other way out.

A chapter 11 bankruptcy is filed when a company needs a temporary stay on its debts and will reorganize in order to reduce its operating expenses so that it will be profitable in the future.

Delta Airlines and Kmart had negative cash flow from operations and then filed for chapter 11 and did this several years ago and emerged leaner and more successful.


Sunshine31- A company may go as far as moving a department within the company to a developing country in order to save on salary costs.

Businesses have to be profitable in order to exist, so a negative net cash flow situation is very serious.


Businesses that have negative operating cash flow have to review their expenditures and reduce them as well as find out why they are not generating sufficient income to support the business.

Operating cash flow is essential for profitable businesses. Sometimes businesses may lay off people or even lower existing salaries of employees in order to remain profitable and maintain their accounting cash flow.

Also, larger businesses might outsource certain departments or functions of the company to other outsourcing providers in order to save money.

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