Whether you are running a business or a household managing the money is a big part of it. While gross income and costs are the most common metrics people track, many forget about one very important measure: cash flow.
Knowing how much money is coming in and going out is crucial. Cash flow adds the time element to that. Many businesses have failed because they didn’t track when money was coming in and going out. Timing is very important because if you have too much money going out before you have money coming in, that’s where financial problems start. The concept is very simple: a negative cash flow indicates that you are spending more than you are earning, a positive cash flow indicates that you are earning more than you are spending.
Track when money comes in. Do your customers pay on receipt of goods or services? That means you are incurring the cost of goods before receiving payment for them. What happens if your client delays payment? Do you have enough cash on hand to continue operations? How long can you go before you get paid? These are the things cash flow will help you determine.
Remember, it isn’t enough to be profitable. You also need to be cash flow positive.
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