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Home Money Keeping Afloat: 5 Reasons Why Cash Flow Matters to your Business

Keeping Afloat: 5 Reasons Why Cash Flow Matters to your Business

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Your cash flow is a key part of your business’ success. It can be said that cash flow is the lifeblood of your business and, without it, your business will die. Keeping your cash flow healthy is essential, but what is it exactly?

Cash flow is the measurement of the amount of cash that is coming in and out of your business during a set amount of time. If you have positive cash flow, then there is more cash coming into your business than there is leaving it. This allows you to cover your expenses and pay your bills. If your cash flow is negative, then you won’t have enough money to cover those expenses and your business will suffer. If you have enough money to meet your financial obligations, then this is your working capital.

Related Post: Why is cash conversion cycle important for your business?

Your revenue is different from your cash flow. Your revenue measures how much money comes into your business, while your cash flow measures how much goes in and out.

Why does cash flow matter?

Without cash flow, you don’t have a functioning business. Here are five reasons why cash flow matters to your business:

1. It gauges the health of your business

Understanding how cash flows in and out of your business will allow you to understand how your business is doing. Having cash is key to keeping your business solvent, without enough cash to pay your creditors and bills, you will face bankruptcy. Having cash is also what will protect your business from unexpected costs like repairs, a customer who can’t pay their bill, or even a lack of income from something as extreme as a pandemic. Keeping a close eye on your cash flow will let you see how your business is doing on a day-to-day basis and the ability to respond quickly.

Also Read: Stakeholder vs. Shareholder: How they are different and why it is important?

2. It lets you keep stock or supplies

Your stock or supplies is what allows your business to run. Without positive cash flow, restaurants can’t buy ingredients to make meals and retail stores can’t stock merchandise. While some businesses may give you supplies on credit if you’re an established customer, new businesses or smaller businesses don’t often get this benefit.

3. It lets you pay your employees

Cash Flow Matters to your Business

No matter how much your employees may like you or believe in your business, they need their paychecks to go through to make sure they can pay their own bills. Having positive cash flow will give you the ability to pay your employees on time and in the amount they’re owed. There’s nothing that can sour a business’ reputation and leave good employees running for the hills like not being able to pay them.

4. It lets you invest in ways to expand your business

Whether this looks like hiring new more employees, opening another location, or buying bigger and better equipment, having a healthy cash flow will allow you to invest in the things you need to keep your business growing and making more profit. You can more insights into expanding your business and spending your cash wisely on businesstrex or other websites that focus on building strong, healthy businesses.

Also Read: Types of Cash Management

5. It lets you understand how your business functions

If you want to have a good handle on your cash flow, then you’ll need to know everything that happens in your business. From the daily, minor expenses, to your monthly costs, to what you pay your employees, you should be aware of every cent that is owed or expected to your business. This will let you stay ahead of the curve if you see trouble arising and give you the chance to take advantage of profitable opportunities.

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