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Negative cash flow

Where cash outflows exceed cash inflows in any given period. This is a common feature of start up businesses in their early years. This is the result of high start up costs, continuing high spending on promotion and, therefore, a high cash outflow, and a slow and low cash inflow as it takes time for the business to build up a customer base and sales. This period of negative cash flow (or net cash outflow) is illustrated by a graph of cash flow over time. It is sometimes called a Death Valley Curve – recalling the perilous wagon train journey to California in the 19th Century. The ‘Promised Land’ was close at hand, but first you had to cross the desert known as Death Valley. If you got through Death Valley you would reach the promised land of California and enjoy high living standards, but many perished on the journey. If the start-up business survives this initial period of net cash outflow it may prosper, but many firms fail to survive the passage – some through ineffective management of cash flow rather than inadequate cash inflows arising from the launch of a product or service that was not commercially viable.

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