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Cash flow: Understanding cash flow

Small Business BasicsIf you're opening your own shop, no doubt you plan to make a profit. But how will cash flow toward your till? In a steady stream, or in floods followed by trickles?

Knowing how to do a cash flow analysis is an essential skill for every business owner; it can be the difference between being able to open a business and being able to stay in business.

Cash flow analysis provides a means for you to conduct a periodic check on your company's financial health. A projected cash flow statement estimates what the stream of money will be in coming months or years, based on a history of sales and expenses. A monthly cash flow statement reveals the current state of affairs.

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A cash flow budget is your core tool for maintaining control of company finances. For example, you can show profits in a company, but still be short on cash if a customer is late on payments. While you can usually cut costs, you can't always generate income or sales. You need to know where the money is, where it's going and how to get more when you need it.


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