Definition: A measure of a company's financial health. Equals cash receipts minus cash payments over a given period of time.
Importance of Cash Flow
A business having a positive cash flow (or liquidity) is the key to survival. It ensures that creditors can be paid, it allows opportunities to be taken and it keeps the entity from going into bankruptcy.
In any business "Cash is King". A business can be making profitable sales and still go under, simply because it doesn't have cash on hand to pay the bills. Producing a cash flow forecast helps you anticipate future cash shortages and assists you in making your business more efficient.
You will identify areas where cutbacks can be made and directly see the influence these saving make. You can also use your cash flow model to run scenarios such as purchasing equipment outright or financing to see the effects to your cash flow.
A cash flow forecast is a very powerful tool due to the vision it gives you and the complete understanding of your business that you gain. It can be strengthened further by linking it to your budgets so that you can see the effect of budget changes on the businesses cash position.
These models and reports are customised to suit your business rather than using a generic cash flow model.
Great cash flow management for the new financial year
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By Roger Balch
Cash is every business’s essential life force, the quicker it flows the more a business can prosper.
Bigger companies have sufficient cash reserves to see them through lean times but many SMEs don't have this luxury.
Not only must they increase the amount of cash coming into the business, they must also ensure that it flows unimpeded so that they can take advantage of opportunities as they arise.
And cash flow is especially important because, as a Scottish bank manager once told Brendan Green, head of cash flow finance at St George Bank: "you only run out of money once".