Business Advice: The Importance of Cash Flow

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, cash holds a critical importance 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 cash flow. And 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 information on business analysis, business planning, and ways to grow your small business profitably, please check out our website www.portalcfo.com.  Follow us on Twitter @portalcfo

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