Understanding Cash Flow


Cash Flow is one of the most critical components of success for a small or mid-sized business. It  gets even more confusing when a company has net income, but negative cash flow. How can that be? Without cash, profits are meaningless. What is the cash balance in your bank account right now? What do you expect the cash balance to be six months from now? If you don’t know the answer to these questions, then get ready for a stressful period in the life of your company.

So what is this cash flow concept? Simply put. “it is the movement of cash in and out of the business.” Cash comes into the company from different sourses; sales, collections of receivables, loan proceeds, investors, the sale of assets, etc. Cash goes out of the company in the form of payroll, utility payments, interest and principle payments, lease payments, rent payments, etc.

Management’s responsibility is to predict the amount of cash that will come into the  company in a given period of time and at the same time, predict the amount of cash that goes out of the company during the same period. Management’s goal is to ensure that more cash comes in rather than goes out. Stated another way, positive cash flow is the ultimate objective.

Achieving a positive cash flow position does not come by chance. Management has to work at it. Management has to have tools that will allow them to forecast periods of cash flow surplus and periods of cash flow shortfalls before it actually happens.

You may need help form an outside, experienced business management advisor, with the development of the correct tools. Allow Evans Business Advisory Service, Inc. an opportunity to develop and customize managerial tools to forecast, monitor and analyze your company’s cash flow needs.

I encourage you to visit our Website at www.evansadvisory.com to learn more about the other services that the company provides.

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