Cash Flow: The tool small and medium sized businesses should master to become successful

We can define cash flow as the flow of money in and out of your current account within a specified period. The period is either weekly, monthly or quarterly. Cash flow is your ‘net operating float.’ It is a critical component of small and mid-sized businesses. You will never know its relevance to your business until your profitable and growing business abruptly goes bankrupt. Dave Kurrasch says that most small and mid-sized business owners do not think about cash flow and research by CB Insight confirm that their ignorance towards cash flow causes a quarter of them to fail.

Cash flow is, therefore, a key indicator and a predictive tool for your business’s income trend.

There are two categories of cash flow you will need to understand for you to make the right decisions for your business.

  1. Positive cash flow – When the daily net cash traffic tends to record an upward mobility, that is an indication that your company’s liquid assets are growing and you have better opportunities to re-invest or plow back the returns to your business.
  2. Negative cash flow – If you are registering a reducing net balance on your current account at the close of every working day, then much is at stake. It is a direct indication that your company is constantly It is enough warning, and there are areas to check on. For instance, reduce your operating costs.

 

As a small/mid-sized business owner, you need to understand that growth in your business is not the way out of your cash flow problems and if you stick to this thinking, you will grow your business only to realize that you have as well increased your cash flow problems.

Therefore, as you plan for your business growth, you need to lay out a plan for your cash flow as well.

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