By LaZandrea Porter
Cash flow management is a vital force to the success of any business, large or small. Some have compared cash flow management to the life source of the human body, the blood. Much like blood, cash keeps a business going, and cash flow is the circulatory system of a business. With this in mind, it is important to understand that managing cash flow goes beyond the generating of sales revenue. This article will aid in providing understanding of the components of cash flow management, as well as provide several key elements in successfully managing cash flow.
What is Cash Flow?
Investopedia.com defines cash flow as a revenue or expense stream that changes as cash account over a given period. Cash inflows usually arise from one of three activities; financing, operations, or investing. Cash outflows result from expenses or investments. In layman terms, this simply refers to how cash moves in and out of a business. In order for a business to be successful, the goal is to insure that your inflows of cash, on a long term basis, exceed your long term cash outflows.
Understanding Cash Inflows and Outflows
Cash outflow refers to the net amount of cash that flows out of a business based on the ongoing operations of that business. These uses of cash are usually expenses, such as payment of salaries and wages, creditors and suppliers, investments, long term business purchases, loan repayment, dividend repayment, income tax, corporation tax, and even lawsuit settlements.
Cash inflows, the optimal goal for a business, are the exact opposite. Inflows are any transfer of money that comes into the business’s possession. The net cash amount that flows into a business due to the ongoing operations of the business, which is most commonly revenues, is where a business would see an inflow of cash. Some examples of cash inflow would be payments from customers, investors,...