Not enrolled in online banking? Enroll today!
Cash flow is the lifeblood of most businesses. In the ideal world, it circulates smoothly. Customers pay their bills regularly which builds positive cash balances in your books. This cash is the money used to pay your suppliers, employees, and to fund your growth. That in turn, keeps your customers buying and paying.
However, there are many twists and turns with the cash flow process. That is why it is important to know how to utilize it best to keep your business solvent and thriving.
Basics of Cash Flow and Definitions
It is helpful to understand the terms used when accountants, bankers, and business owners talk about the cash flow process.
Comparison of Cash Flow to Profit
Profit is different from cash flow. You may realize a healthy profit at year end, yet face an unhealthy cash flow at various times of the year. Understanding your business finances is not as simple as just looking at a profit and loss statement.
Fundamentally, profit is simply your revenues minus your expenses. However, cash flow depends on a broad range of factors including:
In essence, profit refers to income and expenses at a point in time. It is static in this regard. On the other hand, cash flow is dynamic. It involves the timing of the movement of money in and out of the business.
Tips to Improve Cash Flow
A healthy cash flow is an integral part of any successful business. Implement these suggestions as applicable to help you manage and improve the cash flow of your business.
Remember, cash flow is the heartbeat of any business, large or small. Monitor it regularly, and do what it takes to keep a smooth flow of money circulating through your company.