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The Basics of Cash Flow

The Basics of Cash Flow

Knowing your numbers is critical for successful businesses. Many business owners simply look at profit and losses to determine whether their company is successful. However, there are many more financial figures that feed into cash flow. As such, business owners should understand the basics of cash flow. Peak Business Valuation is happy to answer any questions you may have. Schedule a free consultation to get started.

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Cash Flow Management

Cash flow management is essential for small businesses. Each company needs to track how much money is coming into and going out of their business. This can help predict how much money will be available for future business needs. It also helps identify how much money the business needs to cover current operations such as payroll and supplies.

Keeping track of cash flow and analyzing it can help spot trends, prepare for the future, and identify problems. The best practice is to track cash flows on either a weekly, monthly, or quarterly basis.


Positive Cash Flow

Positive cash flow occurs when more money is entering your business than leaving your business. For instance, sales, accounts receivable, etc. are greater than accounts payable, monthly expenses, payroll, etc. This is the goal of all successful companies. Positive cash flow leads to profit.


Negative Cash Flow 

Negative cash flow occurs when business expenses are greater than incoming cash. Businesses in this position are often in trouble. However, there are many steps to fix negative cash flow and cash gaps. If your business is experiencing negative cash flow or a long cash flow gap learn more about what to do in our article on Reducing Your Cash Gap.


Managing Cash Flow

There are many strategies to improve cash flow. Here are a few to focus on.

  • Speed the collection of receivables
  • Liquidate unused assets
  • Eliminate non-essential expenses
  • Extend your payables period

See our article on managing cash flow for a more in-depth analysis of each of these items.

Business owners who understand the basics of cash flow and are effective at managing it will have greater opportunities and more flexibility. While those who do not, end up bankrupt and lacking the cash to meet operations and make investments.


Peak Business Valuation would love to assist you in analyzing your company’s cash flow. Questions are always welcome! Please reach out by scheduling a free consultation.


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