Understanding the Importance of Cash Flow

According to the Small Business Administration (SBA), “cash flow is the lifeblood of a business and critical in its growth.” The importance of cash flow begins before a business owner makes the decision to launch their business because it takes cash to manage the day to day operations.  As a matter of fact, a prominent study by a U.S. Bank found that as many as 82 percent of startups and small businesses fail due to poor cash-flow management.
 
Although cash flow does seem to sometimes flow only one way – out of the business – it does flow both ways.
 
Cash is coming in from customers or clients who are buying your products or services.
 
Cash is going out of your business in the form of payments for liabilities, also known as your expenses.
 
When starting a business, dealing with cash flow can be the most difficult.  You have many expenses and money is going out faster than you can count it.  And you may have no sales or customers who are paying you.  Being cash flow positive means that you’re bringing in more money that you are spending, and your business is doing well. Being cash flow negative means you are spending more that you have coming in, and the survival of your business may be in trouble.
 
You can take control of what happens next in your business by asking yourself the following three questions:

1. What is my cash balance right now?
2. What can I change about my current accounting process?
3. What do I expect my cash balance to be in six-months from now?

 
If you find yourself daydreaming about the answers to these two questions, then you may be taking your business on a rollercoaster ride.  This could not only be frightening to you as a business owner but also to your management team or staff. 
 
One way to keep your cash flow situation under control is by tracking your cash flow results every month to determine if your management team is creating the type of cash flow your business needs.  Start with making those small but yet impactful changes today.