Cash flow is the term used to describe the change in how much cash your company has from one quarter to the next. Taking in more cash than you spend results in a positive flow while having negative cash obviously means you’re spending more than you have. In any business, the amount of cash held by the company is one primary indicator of how well the business is doing overall.
In determining future growth in your organization, it’s important to keep a wary eye on your cash and always keep your business in the black where that’s concerned. Here are some of the imperative considerations you need to make when measuring business objectives and future prospects.
Be Able to Pay Cash for Future Purchases
You have a great passion for your business and you may hope to be in business for a long time. However, if you’re dependent on acquiring debt in your business to maintain it, you’ll have a harder time growing much. Instead of enjoying the fruits of your business venture, you’ll be worrying about interest rates, payment terms, and paying off debts. By having cash, you’ll not only be able to pay for future purchases and fund your own business growth, but you’ll also spend less time stressing about your business and more time just building it.
Make Your Business More Stable
Strong positive cash flow means that you’ll be better able to get financing if you need to. A lender is going to look at your credit and payment history, of course, but they’re also going to look at how much cash you have currently. With positive cash in the bank, you’ll be less desperate for new cash and can pick and choose more favorable loan terms and financial institutions rather than desperately grasping at any loan opportunities that pass by.
Enjoy Flexibility in Your Company
When you have a positive cash flow in your business, you’re giving your business more flexibility later on. If something happens, having cash at the ready to pay for it will allow you to keep moving along in your business without stressing about major events threatening to put the business underwater. It also makes you better able to reward your stakeholders and owners, which will in turn strengthen the company bond with them.
Having positive cash flow has a significant effect on your business now as well as going forward. You can make sure that your company is hugely successful by paying cash for things rather than taking on new debt.