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Understanding The Concept Of Cash Flow

Aug 17, 2007
Many businesses have failed due to lack of cash flow. Having a clear idea of how much cash is available at any given time is crucial for implementing new strategies and for planning any short term or long term funding requirements of the business.

When it is carefully predicted, planned and monitored, it is easier for the business to function. Businesses use projections or forecasts to manage problems concerning it. When these forecasts are accurate, you can obtain a clear idea of how much cash will be needed at any given time and arrange finances to ensure that the business does not have a sudden cash crunch. Projections help make clear exactly how much cash will be available at any given period, so that necessary actions such as investing or using surplus available can also be planned and executed. At times, the business may have problems coordinating the expenses and the income. At such times projections will also be helpful in dealing with the situation. Understanding cash flow serves as an excellent fiscal management tool. It is vital that the fiscal aspect of a business is under good management for a business to succeed.

Basic Rules
Make sure you never run out of money, as businesses sometimes never recover from that.

Give money the respect it deserves and handle it with care. Manage and use it wisely.

Make sure you know your current cash balance at any given time, by managing records and using projections.

Be as accurate as possible in your estimations, as errors can have serious consequences.

Hire qualified people to do the math if you find it difficult. Make sure they are organized and keep records. They must prepare accurate statements.

Never make the mistake of thinking bank balances and cash flow statements are the same thing.

Be accurate and estimate the projections for as much as 6 months in advance.

Have the ability to understand it, understand when there may be a cash crunch, and take appropriate action to counter these times, such as applying for a loan to tide you over.

Make periodic projections, taking into consideration any changes and planning accordingly.

Projections help develop your strategic business plans and help improve business.

Additional Help
These few things will help you learn all about cash flow. There are firms that offer their help and services to make the process of running a business easier. There is also software available with small or large businesses in mind. Never take money for granted especially the money involved in your business.
About the Author
David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
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