Nobody likes making losses in business making. Losses can chip away and in many cases have literally killed many businesses around the world. However, all businesses must find ways to weather this unpredictable storm. Is it possible to obtain funds when under a financial downturn however?
Theoretically it may be possible to make money and possess a positive cash flow while the reports read negative net income. The former is defined as the net amount of cash and cash-equivalents being transacted in and out of the company in an allocated timeframe. A company with a positive cash flow means that the company has gradually increasing financial liquid assets. A company’s liquidity meant that it has a higher chance of paying off its debts, paying dividends to shareholders, and paying its operating expenses.
There are three likely scenarios where despite making a loss on paper, it’s still possible to have money enter the company coffers. They are depreciation, accrued expenses and the sale of assets.
Depreciation is often defined as an accounting method that states the cost of a fixed asset throughout its lifespan. Depreciation has often resulted in the decline in the value of many financial assets and spreads the expense of it over the years of the useful life of that asset.
The depreciation process has helped companies avoid taking a huge reduction in the year the asset is purchased, allowing companies to earn revenue from the asset. If a company has a net loss during the timeframe while maintaining a large depreciation expense amount tallied into the cash flow statement, the company could record a positive influx of cash, while simultaneously recording a financial loss during that time.
The selling of an asset is rather straightforward. Should a company mortgage an asset or a portion of the company to earn funding, the proceeds from the sale can be construed as an addition to cash for the timeframe. As a result, a company could have a net loss on paper while recording positive cash flow from the sale of the asset; though this applies only when the asset’s current market value exceeded the losses for the timeframe.
Accumulated expenses is possible when a company records the expenses for asset purchases, but may not need to pay for it until the next period. Such expenses are recorded during the time of incurrence but not when they are being paid. As a case in point, a company might record a substantial expense in a certain asset they own but lack a cash outlay until the next year when the invoice gets paid. Thus; the company’s financial records in said asset may be a deficit while maintaining a positive financial situation.
Thus, while the papers may record a financial deficit many companies have prepared the necessary countermeasures to weather the storm. As prospective entrepreneurs contingency plans are important for the survival of a business.
