The Definition Of Cash Flow

The Definition Of Cash Flow

The definition of cash flow is not really what you should be looking for to improve your business. It is the practical effect of cash flow and the steps you can take to improve it, that are important to understand.

For those of you looking for a dictionary response, the Collins dictionary states the definition of cash flow as “the movement of money into and out of a business” and “a prediction of such movement over a given period”.

What you need to do is to plan ahead for when you know money needs to go out of the business. You will have regular payments each month such as wages, insurance, suppliers and rent which are easy to plan for. Irregular payments and larger one off purchases are more difficult to factor into your plans. Once you have an idea of when money will be going out and how much it is, you need to plan whether you will have the money available to pay them.

When looking to see what money is coming in, you need to ensure you keep track of when your invoices to clients fall due. The best business models require their customers to pay in advance or at the time of purchase. That isn’t always possible so for those businesses which do provide payment terms, you need to keep track of when payments are due and have set procedures for what you will do if invoices become overdue.

The flow of money in and out of the business is the “cash flow”. Many businesses can look good on paper with lots of money tied up in assets but if they don’t have the cash to pay the bills, they are going to get in trouble quickly.

Please ask and we will send you a copy of our free guide to cash flow with some tips and points for you to apply to your business.