What is Cash Flow?

December 10, 2015 By Dave Chase

Cash flow. This may be a phrase you’ve heard many times in the financial world. The reason you’ve heard it over and over again is because it is key to the survival of every business. Cash flow is the net amount of cash moving in and out of a business. So why exactly is cash flow important, and how can learning more about it help your business?

Cash flow

Cash flow is more specific than a single number. Cash flow is made up of many variables, each contributing to the positive or negative cash flow of a business. A positive cash flow is a sign that a company’s assets are increasing, enabling the company to pay off debts, return money to shareholders, and provide a buffer against future challenges. Negative cash flow is a sign that a company’s assets are decreasing. Overall cash flow is a good sign of the quality of a company’s income, and is a good judge of how prepared a company is for the future.

Being able to manage your cash flow is perhaps more important than knowing what cash flow is. Cash flow management is the process of monitoring, analyzing, and adjusting the cash flow of your business. Many different businesses fail due to the poor management of cash flow. If your business consistently spends more than it earns, then this is a problem that needs to be addressed. There are several different ways to overcome a cash flow problem, including, a cash flow analysis, developing proper strategies, a cash injection, and other financing options.

Cash flow analysis is best performed by looking at your cash flow statement. The cash flow statement is one of the most important statements for your business. This document is a listing of cash flows that occurred during a specific accounting period. In addition to the cash flow statement, a cash flow forecast is a projection of future cash projections. When you look at your cash flow statement, you may find a need to create a cash flow forecast. This can help your business stay profitable and prepared for the future.

There is a lot more to cash flow and cash flow analysis, but the essentials remain. To be a profitable business, you must have a positive cash flow. If you are not positive, then don’t delay in looking for ways to solve this problem. This begins by looking at your cash flow statement, performing a cash flow analysis, and making plans for the future. Wherever your company is financially, it is important to look towards the future, free up cash to invest in growth, and be ready for any hard times that may come your way.

David Chase, Managing Partner at Advanced CFO Solutions, has experience in small to medium private companies and large public companies as a senior operational and financial leader.  With 15 years in finance, a CFO of multiple entities and divisional EVP experience, Dave has a breadth of experience.  Dave has led or been instrumental in raising multiple rounds of equity and debt in excess of $450 million.

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