Improving cash flow is a smart move for any business. It doesn’t matter how great your business model is, how profitable you are, or how many investors you have lined up. If you’re looking for one area to focus on to make a dramatic impact on your business, this is it.
New and growing businesses often don’t have a buffer of extra cash to get them through shortfalls, because they’re always reinvesting. Years with the most significant growth—including the first few years of a business’s lifespan—are also challenging when it comes to cash flow.
Cash flow management is one of many reasons it’s so hard to get a new business off the ground.
What is cash flow management?
Cash flow management is the process of monitoring, analyzing, and optimizing the inflow and outflow of cash within a business. It involves ensuring that a company has sufficient funds available to meet its financial obligations, such as paying bills, salaries, and loan repayments.
Cash inflow is the money coming to a business—this includes sales, interest earned on investments, and any credits paid to the company. Cash outflow is the money going out of a business. For example, expenses like website maintenance and hosting, inventory purchasing, rent, shipping fees, and more. A cash flow statement records these inflows and outflows so you can see it all at a glance and dive deeper where needed.
To calculate cash flow, a business takes note of how much cash is available at the beginning and at the end of a specific period. This time period may be a week or a month. The business will have a positive cash flow if there’s more in the account at the end of the period than when the period began; it will have a negative cash flow if there’s less cash at the end.
Getting good at cash flow management is one of the best things you can do…
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