From Cash Trickle to Cash Flow

Nov 4, 2020

From Cash Trickle to Cash Flow

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The easiest way to think about cash flow: it’s all the money flowing in and out of your business. Each month, you have inbound payments from customers. When the payments occur at the time of purchase, the cash flow is immediate. Other times, you’ll need to take the accounts receivables route to collect on the money due.

Conversely, money flows out your doors when you pay suppliers, make payments on loans, pay rent, and take care of any other expenses your business requires to keep operating. It’s not an inherent problem to have money leaving your business, as this is clearly a necessity.

In order for a business to operate effectively, there needs to be at least as much money coming in as going out. Therefore, it is your solemn duty to look for ways to increase the amount of money you’re making. Having enough money on hand to cover your financial obligations makes you the proud owner of a positive cash flow. And the liquidity that comes with this type of cash flow allows you to maintain operations and consider future expansions for your business.

On the other hand, a negative cash flow means that you aren’t able to meet your monthly obligations. It’s completely acceptable to have a negative cash flow during certain months: for example, you might purchase an expensive piece of important machinery. But your negative cash flow should ideally be limited to times where you’re investing in your business. If you experience long periods of negative cash flow, the consequences can be substantial.

“Building a business requires cash, and cash needs to intensify when growth is accelerating,” explains business guru Andy Bailey. “But companies often fail because leaders at the top did not properly manage the money flowing into and out of the business. New small businesses don’t survive very long throughout the years, according to research from the Bureau of Labor Statistics. Research from CB Insights shows that 29% of new businesses failed because they ran out of cash. Similarly, data from Guidant Financial shows that the No. 1 challenge for 33% of small business owners is lack of capital/cash flow.”

Your cash flow will have a major impact on the success of your business. This guide will examine multiple ways to refine your finances and increase the amount of money coming in so that cash flow becomes a strength for your business.

About the Author

Grant Olsen

Grant Olsen

Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on FitSmallBusiness.com and ModernHealthcare.com. Grant is also the author of the book "Rhino Trouble." He has a B.A. in English from Brigham Young University.

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