Important Facts about Managing Cash Flow

Resources, specifically cash, is the lifeblood of a business, so it’s important to always keep it flowing properly in and out of your enterprise. The process of supervising this flow is referred to as cash flow management. Regardless of whether you’re running a giant multinational corporation or a simple small business, you will need to familiarize yourself with the principles of cash flow management.

Cash Flow vs. Profit

Don’t mistake revenue or profit for cash flow – this can lead to disastrous results in your business’ financial state. You earn revenue through your products and services, and as long as you have already billed a customer, you already have profit. Nevertheless, the only way you can use this revenue to further your business’ existence is if you actually have the cash on-hand – this is cash flow.

Balance Inflow and Outflow

The ‘flow’ part of the term refers to the fact that there should be a constant stream of cash coming in from your clients or debtors and getting out and into the hands of your creditors. Don’t just pay everything in one go, since your cash inflow might have a difficult time catching up. Balance is key.

Don’t Clog Up

While you shouldn’t rush the outflow until you’re drained of ready resources, it’s also important that you don’t accumulate cash and just keep it stagnant. Instead, plan out investment opportunities to let your surplus cash keep working for you while you don’t have a need to spend it yet.