What Is Cash Flow ?

Cash flow refers to the revenues a business generates and collects compared to expenses it pays out over a fixed period of time.

Broadly speaking, businesses bring in money through sales, financing, and returns on investments, and they spend money on supplies and services, as well as utilities, taxes, and other bills.

Being cash flow positive means that you’re bringing in more money than you are spending, and your business is in good shape. Being cash flow negative means that you are spending more than you have coming in, and you’re headed for trouble.

Unfortunately, business owners can’t predict the future particularly when it comes to any uncontrollable variables or unforeseen expenses they might incur, e.g. a truck breaking down prematurely and needing replacement. And they also can’t know for certain that their clients will pay their bills on time.

The Benefits of Positive Cash Flow

Businesses that master cash flow management can: 

1. Pay Their Bills

Positive cash flow ensures employees get checks each payroll cycle. It also gives decision makers the funds they need to pay suppliers, creditors, and the government. 

2. Invest in New Opportunities

When cash is readily available, business owners can invest in opportunities that may arise at any given point in time. 

3. Stomach the Unpredictable

Having access to cash means that whenever equipment breaks, clients don’t pay their invoices on time, or new government regulations come into effect, businesses can survive.

Effect of Negative Cash Flow

When cash flow is negative, businesses may struggle to pay their bills, might not be agile enough to respond to new opportunities, and can have a hard time figuring out how to cover unbudgeted expenses.

Read more: How to Identify and Fix Cash Flow Problems ?

Edited by: 浪子

Bibliography

Anna Eschenburg. (n.d.). Cash Flow 101: What Is Cash Flow? Retrieved from 
https://articles.bplans.com/cash-flow-101-the-basics/