Staying in the Positive: Business Cash Flow
If you’re like most new business owners, you probably have a basic understanding of cash flow. However, if you want a thriving company, it is important to have a deeper knowledge of how money truly affects your bottom line. Check out this quick guide to learn more.
What Is It?
Simply put, cash flow refers to your company’s financial reports. It is the net amount of money you have moving in and out of your business at any time. Most companies track their flow on a monthly basis to understand how the business is performing financially overall. The flow occurs when you consider how much money you’re spending to keep your business in operation compared to how much money you’re earning from clients or customers. If you want a thriving company, it is important to keep the flow in the positive.
The Meaning Behind Being Flow-Positive
Having a positive cash flow means what you think it means – having enough money in your business bank account to pay your employees, purchase materials, equipment, or inventory as needed, and handle any other operating costs. On paper, this may seem “easy.” However, many businesses that are thriving on paper are still struggling when it comes to reality. This is often because of bad timing in relation to expenses and sales. Positive flow is not just about long-term projections but also about how you handle your money in the short term. If you need to spend $10,000 this month but aren’t bringing that type of money until a month or two from now, you could find yourself in hot water.
The Difference Between Positive and Profitable
Just because your company is in the positive, doesn’t mean it’s profitable. In fact, it may not even mean breaking even. In fact, the two are somewhat related, but not the same thing. Positive cash simply means that you have more money coming in than you have going out at any time. On the other handle, profitable business has money left even after all the expenses are paid. This number is typically determined quarterly or annually and may occur even if you had months where things were on shaky ground throughout the quarter or year.
Why It Matters
If you think keeping a business budget is the most accurate way to ensure you stay on track, you are just a bit off. The truth is that managing your cash flow is a better idea. It provides a more accurate read on your company’s overall financial health and helps you to prepare for the future by showing you trends in months, weeks, or even days to see how you can adjust your outgoing cash to match the incoming sales. Ensure you update this information often to get the best reading.
