Learn better from videos? You can jump straight to our overview of cash flow statements.
Cash flow is the lifeblood of your business. And when it stops moving, rigor mortis sets in. In fact, according to Jessie Hagen of US Bank, when companies fail for financial reasons, poor cash flow is to blame 82% of the time.
Consider this an anatomy lesson for your business. First, we’ll explain what cash flow is and how to read a cash flow statement. Then we’ll get into the specifics of managing cash flow and cures you can use if poor cash flow has your business feeling under the weather.
What is cash flow?
Cash flow is a measurement of the amount of cash that comes into and out of your business in a particular period of time. When you have positive cash flow, you have more cash coming into your business than you have leaving it—so you can pay your bills and cover other expenses. When you have negative cash flow, you can’t afford to make those payments. The concept of having “enough money to meet your financial obligations” is also known as working capital.
Cash flow vs. revenue
Revenue measures how much money is coming into your business, while cash flow measures both how much comes in and how much is going out. Cash flow also takes into account things like financing activities: did the bank just deposit a $10,000 loan into your account? It’s cash, so it counts!