Think of cash flow as the blood running through the arteries of your small business. You use it to do those important things that keeps everything moving like buying stock, covering expenses and paying staff.
Basically, this is one of the best bellwethers for your small business. It shows the money that your small business has in the pot after paying out all the different debts and draws on your money. Cash flow gives you a good idea if you’re in a position to expand.
Cash Flow or what is commonly referred to as Working Capital is the heart of any business.
Without it a business cannot survive. Many small business owners make the mistake of spending without consideration for the future. For example, buying excess inventory that ties up cash in inventory versus having it readily available to meet short and long term obligations of the business.
Additionally, smaller businesses run the risk of losing employees, suppliers and facing interest and penalties as a result of poor cash management, so staying current on cash needs means balancing some of the other aspects of your business like tax payments, accounts receivable and inventory. That’s the best way to understand how much money you need in the system for each period.
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