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What is Cash Flow

By Edited May 21, 2016 0 1

Cash flow is one of the most important aspects of running a business, it can either mean the success or failure of your business. It should not be confused with profit, cash flow is money needed to get a business started from scratch. A business owner needs to keep all records concerning how money is allocated to different sectors of their business in order for the business to run smoothly. They must also deduct any expenditures such as inventory or stock , rent of premises any cost to run equipment , payments to staff and so on.... these must be taken into consideration in order to gain any insight on cash that comes out or (cash flow out). Only then can you see weather or not any profit has been made

You have money flowing in and money flowing out of a business, or cash in and cash out so all calculations are deducted accordingly before any cash goes out or any profit is made.

All businesses have a responsibility to pay all it's bills, some bills may have to be payed on a weekly basis and others on a monthly or annul basis, the people to whom that business owes money to are called creditors, if the business doesn't pay the money to them then the creditor can settle it in court which can occur other cost as well,and if there are many creditor asking for money then it can mean that business will become insolvent. So obviously it pays to have good relations with all suppliers and creditors , you pretty much want to have these guy's on your side should the business take a down turn.

Cash flow is money running into a business, naturally bills will occur and will have to be met, once all bills concerning the running of the business are paid for,then the rest of the money is (cash flow out) and this is the end result of what the business receives as profit, only after all bills are paid. The most difficult part is keeping on top of what bills the business owes, the date and time, in which these bills need to be paid,and deducting this money from the total profit the business has made through sales, services and so on.

So the main concern when doing cash flow calculations is deducting all liabilities, expenditures, first then one can calculate any profits, most business find this to be a inconvenience and would rather focus on the running the business . So hiring an account to do the work would make sense if you can afford one, plus there would be much more accuracy in calculating cash flow if done by a professional account.



Apr 2, 2010 9:19pm
You have to learn how to manage cash flow in a business for it to be successful. Too many start up entrepreneurs think that the income they take in is theirs, when in fact it belongs to their 'suppliers'. Only the revenue left over after all of the expenses are paid, belong to the business owner as "profit".
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