If you have a start-up or small-scale business, your profit is probably on top of your mind. While there is nothing wrong with this kind of mindset, especially because the reason why you started with the venture is to make money, there is one more thing that you should never overlook. This is none other than cash flow.
Cash is the lifeline of any business, regardless of size, type, and niche. Without cash, your business gears won’t turn and you won’t see any growth either. This is why it is a must to have a good cash balance if you want things to keep moving.
The easiest way to ensure that cash keeps coming in is to know what cash flow is all about. The thing about cash flow is that it can be both positive and negative. Cash can flow in and out of your business. Following the right procedures and processes will guarantee that your business always remains on the positive side of things. Continue reading below to know what cash flow is and why it is important.
Cash Flow Defined
Cash flow refers to the decrease or increase of money in businesses, institutions, and individuals. Cash flow in the financial world, however, has a narrower definition. Cash flow in finance describes the amount of consumed or generated cash within a specific timeframe. This period is often similar to the accounting period.
There are several different types of cash flow and it can also be varied. The secret behind the success of a business is the ability to use several cash flows for financial analysis. Of course, it is the ultimate goal of any financial data or documentation in business.
Importance of Cash Flow
Cash flow is extremely critical to all businesses. It rings truer to small businesses. The following are the top reasons why cash flow is important to a small business:
- Expansion
You will know right away where expansion is possible if you keep an eye on your cash. Although expansion is a significant expense, it can also increase your cash flow. If you have a strong enough cash flow to allow for expansion, it would be safe to do so. But you should avoid it if your cash flow isn’t confidently strong to avoid overextending your business.
- Expense Management
You can have more effective expense management if you can see where your cash flows. No business owner likes the thought of hemorrhaging cash. Even the strongest businesses can bleed dry because of it. Overspending and underperforming are a big no-no. Understanding cash flows will make it easier to manage expenses.
- Generating Investments
Businesses with strong cash flows attract more investors. If you want to have more people investing in your business, you have to be familiar with your cash flow. Investors look for businesses that are well-versed in how they spend and make money.
- Decision-Making and Planning
You can plan for your business better if you understand how your cash flows. If you have no idea where you generate cash, you can never plan accordingly. With a precise statement of cash flow, you will know where your financial standing is right away.
If you don’t want your business to remain stagnant, pay attention to your cash flow and keep it going strong.