Why is cash flow important?
Cash flow is the ‘new black’ for 2020…but why is it important?
Cash flow has a profound impact on the entire business. Despite this, there’s still some confusion surrounding the concept and its practical application. Understanding cash flow goes hand-in-hand with business success while ignoring it can lead to disastrous results.
Balancing incoming cash with outgoing cash is art mixed with science. Accountants and business owners can get a picture of the overall business health at any point in time by understanding this ebb and flow.
Businesses fail for a variety of reasons, but at their root, the overwhelming majority of problems are cash management-related. Perhaps there’s not enough cash on hand to make important and timely purchases, or the cash position has become negative over a period of time and there’s a final ‘death blow’ to the business in the form of a more acute incident that topples the business. These failures can largely be avoided depending on the type and amount of spending going on.
While it is difficult to change fixed overhead costs like rent, electricity, and the internet, it is easy to adjust the level of spending on variable costs like inventory and marketing/advertising. That is why managing cash flow in relation to the greater health of the business is important. It helps you see where you may cross the line into negative cash flow and adjust your spending ahead of time.
Need some guidance on managing your cash flow?
Prosperity Bookkeeping is a partner with Dryrun, the world leader in Cash Flow Management software. We fully integrate with Accounting platforms and we provide consultative services so you can get up and running quickly. We are happy to chat with you! Visit our website for more details.