What is cash flow? And why is it so crucial for a start-up? Essentially, cash flow consists on the movement of funds in and out of a business. Every entrepreneur knows how important it is to track this movement regularly. Weekly, monthly or quarterly, tracking cash flow is essential for future planning and development. Running out of cash is the very definition of business failure.
The time between paying your suppliers and employees and collecting payments from your customers is the main issue. This is why cash flow management is an essential task in any company. At its simplest, cash flow management means delaying outlays of cash where possible while encouraging anyone who owes you money to pay it as quickly as possible.
Less experienced entrepreneurs often mistake a positive cash flow with profit. This is simply wrong. The fact is that in order to generate a profit the company needs to have a positive cash flow. Any business needs cash to pay employees and suppliers and to make goods or provide services. The sale of goods or services is what will ultimately generate a profit. No money to make goods or provide services means there will be no profit. Hence the importance of paying close attention to cash flow management.
So, how do entrepreneurs keep on top of things? The answer lies in a good cloud-based integrated accounting system such as Sage One. This integrated accounting system offers, amongst many features, cash flow forecasts that provide an accurate picture of the company’s position. And because it’s cloud-based it can be accessible from anywhere and on any device via an internet connection.
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