Running a business comes with many advantages and drawbacks. An example of advantage is that you’re your own boss. And an instance of a drawback is that you’re always running after time and money. As you already know, the importance of cash flow is the number one priority in small businesses. This is because it allows you to finance certain investment projects and sends a signal about the company’s financial health status. However, cash isn’t the most important aspect of running a business successfully, unlike the importance of cash flow. Here’s why:
Surviving and evolving
While cash is arguably one of the most highly prized resources that you may earn, cash flow is even more essential. Put in the simplest terms, cash flow is the movement of money from external parties to your business account, and vice-versa. For example, let’s imagine you’ve just delivered merchandise to a customer who agreed to pay within 30 days. Until the payment is made, there won’t be any cash flow towards your company’s account. And if the situation doesn’t get resolved by the end of the 30th day, you might not be able to pay for some of your expenses. So in a sense, cash flow is what allows you to ensure the survival of your company and eventually to evolve; depending on how you’re able to manage it.
Always make sure you get paid
The importance of cash flow is visible at different levels on your financial statements. So, unless you get paid for the services you provided, you won’t be able to finance your expenses in the long run. In fact, you should think of cash as money that is available for urgent needs only. That’s why most companies, large and small, only have a small amount for the cash item on their balance sheet.
Understanding the importance of cash flow will save you from lots of financial issues down the road and help you take your company to the next level.
Remember, running a business successfully does not need to be complicated. Keep it simple!
For more interesting topics to help you successfully manage the challenges of growing your business profitably, please search our blog at our website www.portalcfo.com.
Manny Skevofilax is a consultant, speaker, and author who helps business owners maximize profits and overcome growth challenges to achieve financial freedom. An expert in strategic planning, financial statement analysis, and business operations, he’s been achieving extraordinary outcomes for his clients since 2003. Prior to starting his consultancy, he was a vice president with Comerica Bank, a U.S.-based commercial lending institution. His new book is Ultimate Profit Management: Maximizing Profitability as You Grow Your Business which was published by Taylor & Francis.
Learn more at portalcfo.com. Manny can be reached at 410-808-3441 or via email at manny@portalcfo.com.
