Cash Flow Overview
Money. That's what it's
all about. Where it comes from and where it goes. But managing the
flow of cash through a business is also very important. Monitoring
cash flow can help you predict problems before they happen. It can
signal difficulties with production schedules and customers who don't
pay their bills.
Cash flow is the life blood
of a business. You can be very busy-even have a lot of customers-and
still not have the cash flow to meet your goals or stay in business.
To put it another way,
a good manager monitors the finances of the business like a coach
checking the scoreboard during the basketball game. You may not watch
the scoreboard continuously, but you will monitor the score from time
to time. You will check the clock to see how much time you have to
meet your goal of winning. You have to know how you are doing.
A good coach also reviews
the "stats" to know where the team's strengths and weaknesses, and
where the team is in the standings, in order to develop winning strategies.
So, too, a smart entrepreneur will review the financial "stats" of
the business to make effective decisions. Whether or not you do your
own accounting, as a business owner, you must always be aware of the
score and how to use your financial "stats."
Cash flow is the lifeline
of a business. If a business does not receive enough money in time
to pay its bills, it may face failure and ultimately bankruptcy. Understanding
what affects your cash flow will help you to forecast and plan for
any anticipated shortages. It will help you develop strategies for
using your profits.
Cash flow is the difference
between cash receipts (the money you receive) and cash disbursements
(the money you spend). You must understand your business's cash receipts
and cash disbursements. But you also have to now how cash "flows"
through your business.
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