Virtually every business requires some available cash flow to operate. Having a steady flow of cash ensures that the bills and vendors get paid, in addition to the workers who help keep a company alive. This money may also be used to aid in determining a company’s financial health. Read below for a crash course in the basics.
Identifying the Flow of Cash
In the most basic of definitions, cash flow is the money that flows into and out of a business. If this flow is positive, that means a company is receiving enough cash to operate smoothly. If the flow of cash is negative for a company, that business might find it challenging to cover its financial obligations.
Inflows and Outflows
Along with money earned from sales transactions, assets that are easily made into cash may be referred to as inflows. The money used to cover expenses and investment purchases may be referred to as outflows. Ideally, the inflows will exceed the outflows most or all of the time.
Managing the Flow of Cash
When you consistently track the flow of cash that comes into and goes out of your business, you will be better able to identify existing or potential issues. By monitoring such activities, you also may be in a position to predict future inflows and outflows.
Profitability is not the same thing as cash flow. Profitability merely means that a business has money coming into it. Cash flow is the term used to describe money coming in and money that goes out of business.
Without cash flow, a business cannot remain operational. You may find that your business generally has enough cash, but that unexpected circumstances sometimes leave it struggling. If your business currently needs more cash to survive, contact Impact Commercial Capital for solutions.