Why Cash Flow Is Important?

[kayode10]

Raising capital is one of the most difficult job of an entrepreneur especially the new ones. People engage in so many activities to raise capital for their business idea.

Two major ways in which someone can raise capital for their business idea is to go to bank to obtain loan or through friends and family.

If your immediate family members and friends are not financially buoyant it can be very difficult to raise enough capital from them. The only option is to go to the financial institution but you must have an heavy before you can obtain loan from the institution.

After raising capital and launched the business, enterpreneur are always advise to maintain positive cash flow.

Cash flow is another word in business worlds. I heard a lot about cash flow but I still find it difficult to understand the concepts to the fullest.

I came across the world cash flow when I was reading a personal finance book few years back. It is being said in the book that without a good cash flow there's no way a business will sustain for a long time.

I believe once the case is being generated consistently cashflow does not need much attention. This prompt me to ask you guys that why is cash flow important?

 

[Jasz]

Cash flow is a measure of the money coming in and going out of a business, while profit is a measure of profitability.

Cash flow is important because it's the lifeblood of businesses, large and small. Without adequate cash flow, it can be difficult for a business to pay its bills, repay loans or purchase new inventory.

In contrast, profit is the amount of income that remains after accounting for all expenses, debts and additional costs. It's what is left over when a company subtracts all of its expenses from its revenue and it isn't always an accurate indicator of financial health.

Many small business owners don't truly understand the importance of cash flow. That's understandable. After all, it can be confusing to hear about "accounts receivable turnover" and "net profit margin," especially if you're just starting out. But here's the deal: it is important to understand what your cash flow is, how it works, and why you need to make it a priority.

At its core, cash flow refers to the amount of money that is flowing into your business (through revenue), and the amount of money going out of your business (through expenses). In other words, how much money is coming in and how much is being spent? If you have more money coming in than going out, you have positive cash flow. If you aren't covering expenses with revenue, you're in negative cash flow.

In either case, you need to understand why your cash flow is what it is. If you have positive cash flow, you need to know what's working for your business so that you can keep doing it—and maybe even do more! If your cash flow is negative, you need to know why so that you can fix it before things become dire.

To get a better idea of whether or not your business has positive or negative outcome.

 

[Alexandoy]

The cash flow is the amount of funds that you need for the operation to pay the obligations. In other words, the cash flow is the money that handles the expenses which includes the purchase of the supplies or the hiring of people for the services. If your cash is tight and you cannot give the salary of your staff then that would be a big problem. You have to borrow instant cash otherwise your business may fail because the staff may leave you without notice. Anyway, when the cash flow is tight the tendency is you have not more money to pay for the expense. If you fail to pay the electricity or the utility then you may have no power in the office or in the store. Simply put cash flow is the amount of budget that you need for a particular period that is usually a month.

 

[Abigael]

Personally, I understand cash flow as that money that circulates within the business. As you said, one starts a business using capital from different sources. It could be from a loan, or your saved money, income earned from your job or funds received from friends and family. This capital is used to set up the business; to pay rent needed and buy the stock that the business will be selling.

Once you start selling in your business, you earn income which includes profits made from the capital you invested. Of which you will use the money to buy more stock. You can either put aside the profits or reinvest it back to the business. That is what I understand with cash flow.

It is so important to every business to keep this cash flow positive. This is by making sure that you don't end up going bankrupt. Therefore, financial management is very important for a business person. It enables you to spend the money wisely such that you always have enough for buying stock and paying your bills.

Keeping a positive cash flow also enables a business to grow. Especially if you choose to plough back profits more than spending it all. You end up having so much to sell and that grows your business greatly.

 

[Yusra3]

Cash management is a cornerstone of the well-being of any business or home in financial standing. A situation in which a company brings in more money than it spends on its essentials (outgoing and payable) is what's called "positive cash flow." Credit is a crucial factor in terms of cash flow. It is a tool among entrepreneurs to pay bills, employees and capital for expansion. The financial stability that results from efficient cash flow management often enables companies to pay their bills on time, their liabilities to be discharged, and extra resources to be directed towards investment or saving or business expansion. Cash flow monitoring and making sure everything is tuned well is key, so that the company will not encounter cash flow problems as bankruptcy, insolvency or a liquidity crisis.