A business without cashflow is like a fish out of water

Fish can only be out of water for a few minutes before they stopping flopping around and start to dehydrate. The same holds true for a business without cash. Much like fish need water; your business needs a sea of cash to survive.

Businesses require a steady stream of cash moving in and out of the business in order to function from day to day (ie: Cash flow).

Cashflow is used to measure your business’ financial performance and is crucial in order to be solvent. Cash doesn’t include your inventory, accounts receivable, or property. Even though all three of these can turn into cash, you more than likely can’t trade excess inventory or the spare cubicle for goods or services.

Be careful not to confuse cash with profit. Why? Because profit is the money a business makes after accounting for all the expenses (In other words, it’s what’s left over after you have used the cash to pay the bills) Even if a business can forecast a profitable year, if there’s no cash in the short term, the business is in trouble.

It’s important that your business doesn’t drowned in all the cash that’s in the bank. Companies who pay attention to their cash flow statements know that if they have abundant cash on hand they are able to invest the cash back into the business in order to produce more profit.

About the author: Antony Firth