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Importance of Cash Flow to Your Business

  • July 31, 2020
  • Written by : REIL Capital

Money moving or flowing in and out of your business over a certain period of time defines the cash flow of your business. Most businesses calculate the net change in their cash position for a month to determine the cash flow. Positive cash flow means the company got more cash in than it sent out over a period of time. Similarly, negative cash flow represents more outflow than inflow.

Now that you know what cash flow means, it is easy to understand how cash flow can define the financial health of a business. Let’s see how strong cash flow can help a business from multiple ends.

Allows You to Invest in Growth

A small food chain can only become the next McDonald’s or KFC when it can save enough to invest in growth. Every business should have a strong cash flow if it wants to do more research and development, build new locations, renovate infrastructure, purchase more assets, provide more training, improve technology, update inventory, and do everything that defines growth. Business owners can opt for a proactive and strategic approach rather than a defensive one by getting excess cash flow. 

Helps Keeping Up with Debt

Business owners have to borrow money to buy buildings, equipment, inventory, or certain other things. This is the positive future cash flow that businesses use in order to grow their business rapidly. Companies either get a long-term loan or short term credit from finance companies and all of them require certain monthly payments. Positive cash flow allows you to keep up with debt while also providing the ability to invest in your business.

Gives You Flexibility

Running a business is not an easy task with unwanted situations and dilemmas affecting critical business decisions. Thanks to positive cash flow, you can confidently make financial decisions. You can disperse cash to shareholders strengthening the bond between the business and its owners. Lenders are always eyeing for strong cash flow holders to give loans.

Your business will not only appeal to lenders but you will also get favorable terms on credit. However, if you have gaps in your cash flow, lending from a non-banking finance company is recommended. 

Cash is King

When you are in a business, you need to live by this single expression- Cash is King. It depicts that if you are a business owner with cash in your hand, you are in a stable position to do anything you want. It gives you buying or selling power and offers you protection against all types of credit or loans. However, when we talk about cash flow, it’s the ongoing ability to do anything. Cash flow helps in all the above situations while also giving you a cash position for confident decision making.

Conclusion

Any business can have a positive cash flow if the idea and implementation have been accurate. But some unfortunate events in business or requirement of new equipment or several other things can leave cash flow gaps in between that can hurt your business every month. 

Fill these cash flow gaps with the best small business financing options from REIL Capital available at reasonable interest rates.

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