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Descriptionexplains conecpt of cash-flow in a business organisation.
Watching a business floundering, running out of cash even as it makes great sales
and profit advances, is painful. Painful though it may be, it is common and frequently the
cause of small business failure.
Our concern is how to identify, then avoid or control this problem. As times
change, as populations shift and other businesses start up and go out of business for
various reasons, as new competitors armed with new ideas and energy enter your market,
and as new products are developed and marketed with positive (or not so positive)
implications for your business - you have to do more than merely react! You must
understand these changes and then, when they occur be ready to respond or even turn
them to your own advantage. You have two ways to run your business: reactively or
A reactive management is always struggling to catch up with the latest outside
development. A reactive firm is at the mercy of its environment pushed about by forces it
On the other hand, a proactive management anticipates problems, which may crop
up and plans ways to either turn them into opportunities to be exploited or blunt their
negative impact by forming strategies to handle them if they come to pass. This puts the
proactive management in control of the business, not the business in control, as is the
case with reactive management. The choice is either to control the situation or be
controlled by it.
Recognizing these choices, developing an understanding of different management
techniques are only part of the process. Needed also is a strategic context for both analysis
and action. This means understanding what you are going to do and why.
Small business survival calls for many functional skills -cash flow management is
one example -but underlying those skills must be the will to apply them. A proactive
management will use tools to shape its business's future, and will survive. A reactive
management won't "waste" the time planning cash flow until the crisis is already
overwhelming, and so will not survive.
What is Cash Flow?
In its simplest form, cash flow refers to the flows of cash, literally, into and out of
the business. Think in terms of actual cash, dollar bills, flowing in and out of your
business, and then identify both their sources and uses to identify cash flow fluctuations
over an annual period
The sources of cash (inflows) are limited to:
1 New investment
2 New debts
3 Sale of fixed assets
4 Operating profits.
Thatís it. There are no other sources. No hidden springs to be tapped in dry times.
Oh yes, about your fairy godmother Ė donít count on her either. Inspecting this list will
show that each of these sources has important limitations on it as well. The only source
that can be depended on in an ongoing fashion is operating profits.
This is what makes profit planning such an important activity for ...
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