Simply put, cash flow is the movement of cash going into and out of a business. The concept of
cash here refers to the money a business has on hand in real life. A business’s cash flow can be either positive or negative. A negative cash flow means that the firm has spent more than what they received, and vice versa in case of a positive cah flow.
Cash is, obviously, extremely important for a business. Without cash, it is impossible for a business to do anything, from paying bills to spending on operating expenses. If there is no cash, profits are also meaningless. Therefore, it is at absolute importance that a business should closely monitor their cash flow, conduct thorough analysis, and make immediate adjustments to avoid ending up with bankruptcy.
In order to maintain good relationships with all the shareholders of the business, entrepreneurs and business owners should be able to smartly project and manage their cash flow to suit their business needs.
A business is likely to suffer from a negative cash flow in their first year of business due to excessive spending on the business’s introduction to the market, and it is with high importance that the business will not let this situation to go on for a long time. A negative cash flow can directly lead to a negative cash balance, which will lead to many other difficulties regarding attracting investors, getting loans, paying suppliers and staffs, etc.
It is understandable that many businesses focus most of their efforts into making profits. However, it is cash flow that will correctly display the financial health of a business. Many profitable companies have been forced to go out of business due to the lack in physical cash to pay for their debtors. Cash flow management should be at the top of every business’s priority list and should be carefully administrated by specified individuals, led by the chief financial officer of that firm.
Bad management of cash flow will obstruct a business way to success and sustainability. If you need help to improve your business’s cash flow management and business strategy, contact Maverick Mentoring for your FREE 1-on-1 consultation NOW!
