Look, I get it. Most of you clicked on this article because you were either incredibly bored, trying to procrastinate some mundane task, or genuinely wanting to understand the ever-enticing mystery of “what is cash flow?” And guess what? All of those are legitimate reasons. Why? Because cash flow, like your ex’s bizarre fascination with collecting ceramic frogs, can be baffling yet intriguing at the same time.
Cash flow refers to the inflow and outflow of money in a business, representing its operating activities. In simple terms, if more money is coming in than going out, your cash flow is positive. If the opposite is true, it’s negative. Cash flow is vital because it enables you to meet your financial obligations and plan for the future.
“Revenue is vanity, profit is sanity, but cash is king.” – Unknown
While profit is essential, cash flow is often considered a better indicator of a company’s financial health. There are a couple of reasons for this:
Cash is king: Cash is the lifeblood of any business; without it, even the most profitable company can go under.
Profit figures can be manipulated: They can include non-cash line items such as depreciation expenses or goodwill write-offs, making them easier to manipulate.
To better understand the importance of cash flow, let’s look at some examples:
Example 1: A business may see a monthly profit, but if its money is tied up in hard assets or accounts receivable, there may be no cash to pay employees. Once a debt is paid or the business sees an influx in revenue, it starts to see positive cash flow again. In this case, cash flow is more important because it keeps the business running while maintaining profit.
Example 2: A company with a negative cash flow may need help to grow or even survive. A study found that 82% of businesses that fail do so because they have cash flow issues.
1. Invoice Immediately: Don’t let your bills gather dust. The sooner you invoice, the sooner you can get that sweet moolah.
2. Have a Rainy Day Fund: Just like you might stash a bit of cash for unexpected expenses (like that impromptu road trip), businesses need a buffer too.
3. Keep an Eye on Spending: Do you need that golden toilet for the office? Probably not.
By implementing these strategies, you can improve your business’s cash flow and ensure its financial stability.
Cash flow refers to the inflow and outflow of money in a business, while profit is the difference between a company’s revenues and expenses. Cash flow is often considered a better indicator of a company’s financial health because it reflects the actual money available to meet financial obligations and plan for the future.
A cash flow statement is a financial statement that shows how much cash enters and leaves a business during a specific period. It helps business owners understand their cash position and make informed decisions about their operations.
Understanding cash flow is crucial for any business owner. It’s your business’s lifeblood; even the most profitable company can struggle to survive without it. By closely monitoring your cash flow and making informed decisions, you can ensure your business thrives in the long run. So, remember: cash is king and cash flow is its loyal subject.
Up until working with Casey, we had only had poor to mediocre experiences outsourcing work to agencies. Casey & the team at CJ&CO are the exception to the rule.
Communication was beyond great, his understanding of our vision was phenomenal, and instead of needing babysitting like the other agencies we worked with, he was not only completely dependable but also gave us sound suggestions on how to get better results, at the risk of us not needing him for the initial job we requested (absolute gem).
This has truly been the first time we worked with someone outside of our business that quickly grasped our vision, and that I could completely forget about and would still deliver above expectations.
I honestly can’t wait to work in many more projects together!
Disclaimer
*The information this blog provides is for general informational purposes only and is not intended as financial or professional advice. The information may not reflect current developments and may be changed or updated without notice. Any opinions expressed on this blog are the author’s own and do not necessarily reflect the views of the author’s employer or any other organization. You should not act or rely on any information contained in this blog without first seeking the advice of a professional. No representation or warranty, express or implied, is made as to the accuracy or completeness of the information contained in this blog. The author and affiliated parties assume no liability for any errors or omissions.
