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The world of finance is a complicated area, and it has its own language. You may have heard the phrases ‘in the black’ and ‘in the red’ in everyday speech, but you may or may not know what it means. So, what does it mean to be in the black or red? When the option is red or black, it may be difficult to figure out which one is supposed to be the better one.
When accounting was done by hand, color indicators were used to mark the difference in finances. Credits and profits were written in black ink, while red ink noted debits, debts, and other financial losses. Red is a harsh color that stands out. Being in the black is a positive thing because it means you have more money or more income than expenses or debt. Companies and individuals can bounce between black and red, especially if there are several years of inconsistent cash flow.
The experienced Kentucky bankruptcy attorneys at O’Bryan Law Offices want to help you figure out these financial phrases and how they may pertain to your financial situation. If you are struggling to stay in the black, we can help. Call us today at 205-400-4020 for debt relief options that fit you.
What Does In the Red Mean?
When a business is in the red, it means that it is losing money. The phrase isn’t only for businesses, though. It could also describe an individual that is spending more money than they earn. Red ink is generally not used anymore, but the phrase ‘in the red’ is still used in common conversation. A minus sign or a set of parentheses denotes a negative number in most software today. Some finance software sticks to the old ways and still uses the color red to mark debts.
‘Negative earnings’ seems like an oxymoron. A brief period of negative earnings (also called losses) can be common for most businesses. Shareholders and investors tend to focus on the future of your company instead of the current cash on hand. Shareholders are willing to forgive temporary setbacks, especially if it’s during an exceptionally good year. Being in the red is a negative thing because it means that there is some debt or expense that is costing more than you earn. But just because it’s common doesn’t mean businesses and individuals have to stay in the red.
What Does Being in the Black Mean?
Being in the black means that you have been profitable. You make more than you spend. Your company has more income than debt, and you can pay your expenses with ease. You may not be making a profit, but you are at least breaking even. This is a huge contrast to being in the red. The way you handle your business (or your bank account) has a lot to do with how well it performs.
If you are having an exceptionally good year, you will usually see positive earnings. This means that your company is making a profit. Companies with consistently positive earnings usually follow a specific plan to maximize profitability, otherwise, they stay in the black for a little while and then fall slowly back into the red.
What is a Solid Business Performance?
Business strategy refers to the way a business conducts itself to be profitable. Sales are not the only way to make revenue. The way your business handles the rise and fall of the economy can have an impact on your profitability. Companies that remain stagnant and don’t change typically have a lower income, even if their expenses never increase. Solid business performance can mean the difference between staying consistently in the black or bouncing between black and red with no end in sight.
How to Get Out of the Red and Into the Black?
The definition of financially solvent is the ability to pay all your bills and have cash left over. There are a few steps to becoming more financially solvent. This is a common goal for any business or individual–to be able to pay bills and make a profit. It’s common for your business to be in the black and fall back into the red periodically. If you find yourself consistently short on money, it may be time to take extra steps.
Review Your Financial Statements
It’s important to have your financial statements organized so you can track trends and debts easily. Computers have made it easy to track finances without having to waste ink and paper. By accounting for all your debt in one place, you can see which debts would be easiest to pay off and how much money you have to do it. You can also see any trends in income so you can plan your future expenses in a more effective way.
Get Out of the Red by Paying Off Debt
Once you have all your expenses for your company listed and organized, you can make a plan to pay off the debt. It’s generally advised that you start with the debt that has the most amount of interest or the highest monthly payments. Sometimes paying off debt isn’t so easy. If you find yourself struggling to pay off debt, it may be time to consider filing for bankruptcy.
Filing for Bankruptcy
Filing for bankruptcy may seem like a last resort, but it can actually be extremely helpful for people who find themselves unable to pay off their debts. Bankruptcy can prevent someone from losing their life savings or using their retirement to pay off a debt. At O’Bryan Law Offices, bankruptcy is our specialty. We can help you determine what to consider when looking for a bankruptcy attorney.
Once you have paid off some of your debt, it may be time to concern yourself with setting up a plan to keep your company in the black. Reducing the number of services you buy can help save money in your budget and make room for savings. Accountants can help with this step. If you don’t have accountants on staff at your business, it may be wise to invest in one to help you stay profitable.
Key Takeaways to Remember
It’s important to remember that a cash flow is exactly that–it flows. You can’t make money without spending it. Being in the red and being in the black are phrases that refer to your financial health. Does being in the black mean that your business is perfect? Nope. Being in the black means that you or your business is profitable, but that profit can be temporary, not consistent year after year. You need to do what you can to make sure you are following a financial plan to reduce debt.
Kentucky Bankruptcy Lawyers
Being in the red or being in the black is more than words and phrases. If you find yourself in the red year after year, the future of your business may not have a positive outlook. After years of being in the red and having no idea how to get out, sometimes bankruptcy is the answer. Bankruptcy often gets a bad reputation, but it can be a way for many companies to pull themselves out from under a mountain of debt. The benefits of bankruptcy are numerous, including letting you save money for the future and setting up a solid financial plan.