Cash flow is the lifeblood of a small business. Without it, all operations would come to a screeching halt. Yet amazingly one of the biggest reasons why small businesses fail is that their owners are not in touch with the flow of capital in and out of the company. The result is that they do not recognize an impending cash crisis and thus fail to take necessary action to improve the situation; Cutting expenses,
securing small business loans, or improving on collections.
And when they do finally react, it is often too late.
What is Cash Flow?
Your cash flow represents the flow of
working capital that is brought into your business and given out. It generally has little to do with your small business' profits or loses. (This is why a business can be profitable on paper, yet simultaneously experience a cash shortage). Your cash flow is instead effected, by your accounts receivable, inventory, accounts payable, capital expenditures, and incurred debt.
