Cash Flow – Why it’s important to you

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Cash flow. What is cash flow ? Wikipedia states that “Cash flow is the movement of money into or out of a business, project, or financial product”. In other words, cash flow represents actual money flowing in and out of a business’s bank account.

So why is cash flow important ? Well, let’s take this hypothetical scenario. Your company has a $10,000.00 per month lease on office space, $150,000.00 in Accounts Receivable, and $5,000.00 in cash. Technically speaking, your company has $155,000.00 in current assets, but it’s not all in cash assets. What happens if your company’s clients are slow at paying, and a month rolls by and you haven’t collected anything yet ? Now your lease payment is due and you don’t have enough money in the bank account to cover it, even though you have significantly more ‘owed to you’.

Cash flow can make or break any business in any industry. If you can’t pay your debt obligations, like in the scenario above, you run into a situation called cash flow insolvency. As a business owner, it’s simply not enough to generate revenue and sit back. You need to pay attention to your cash flow and make sure that you have enough cash-on-hand to be able to fulfill your expense obligations.

This is only one part of managing a business’s financials, but a very important one to keep in mind when running your own company.


Martin Lehner

Martin Lehner is an technology professional working for an IT services firm in Whitehorse, Yukon (Canada). He has been working in the technology field for over a decade. With a degree in Business Admin and numerous industry certifications, Martin leads a team of IT professionals that provide third party support for clients. Originally starting a company to offer web development services, Martin quickly realized that clients wanted the entire spectrum of technology services. When Martin is not at work (which is not often, since his company offers 24/7 support), he is busy at home spending time with his family.

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