Cash Flow Management

Cash Flow Management

Cash flow management is the process of monitoring, analyzing, and adjusting your business’ cash flow. It is very important to eliminate your cash flow concerns, to provide you the freedom to concentrate running your business and making it more profitable.

What is Cash flow?

Cash flow is an accounting term that refers to the amounts of cash being received and spent by a business during a defined period of time, sometimes tied to a specific project. Measurement of cash flow can be used

  • to evaluate the state or performance of a business or project.
  • to determine problems with liquidity. Being profitable does not necessarily mean being liquid. A company can fail because of a shortage of cash, even while profitable.
  • to generate project rate of returns. The time of cash flows into and out of projects are used as inputs to financial models such as internal rate of return, and net present value.
  • to examine income or growth of a business when is believed that accrual accounting concepts do not represent economic realities. Alternately, cash flow can be used to ‘validate’ the net income generated by accrual accounting.

Cash flow as a generic term may be used differently depending on context, and certain cash flow definitions may be adapted by analysts and users for their own uses. Common terms (with relatively standardized definitions) include operating cash flow and free cash flow.

Once way to improve cash flow is by increasing borrowing, or putting more money into the business. This is acceptable for coping with short-term downturns or to fund growth in line with your business plan, but shouldn’t form the basis of your cash strategy.

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