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what is cash flow in business

Cash Flow in Business – 3 powerful reasons it matters

What is cash flow in business? The real cash flow definition

what is cash flow in business

I bet you’ve heard the scary statistic about how many small businesses fail every year. Did you know that the #1 reason that small businesses fail is because of cash flow? It’s true and yet many times business owners don’t know what a cash flow definition really is. Today that changes. 

Cash Flow Definition:

cash flow in business what is it

The technical cash flow definition is, “Cash flow refers to the net balance of cash moving into and out of a business at a specific point in time” per Harvard Business School

The easiest way to think about cash flow in business is: 

  • cash flow is the money coming in AND out of your business over time

Where cash flow gets tricky is that the money coming IN doesn’t always come IN at the time you need it to…and the money going OUT leaves your account before the money is in there to cover it. Sound familiar?

Cash Flow in Business – in reality:

cash flow in business reality

Cash flow seems so simple, doesn’t it? And yet, it is still the #1 reason that businesses struggle. 

Cash flow issues can take a lot of forms, but these are some examples of what cash flow dysfunction can look like:

  • Bills not getting paid on time because it’s hard to keep track of when their due and you don’t really have a good system for it
  • Income coming in and then immediately going back out because once you have money in the bank you think – WAHOO!!! I finally have money to buy that new course/invest in business coaching/get that new logo
  • Bank accounts going negative or pulling from savings because the autopay bills came out before the client payments for the month got deposited
  • You make hiring decisions based on your “gut” because you don’t really know what else to use in making the decision
  • You can’t pay yourself a regular wage because your money goes up and down like a rollercoaster – some months it’s great and some months it’s not
  • You’re not sure whether you have enough clients to hit your income goals – so you’re constantly hustling
  • You’re not confident in your prices – you just sort of went with what felt good – but now you’re starting to feel resentful about how little you’re making for your efforts

Cash Flow in Business –
Where you might get tripped up

cash flow in business trip

So often when talking about cash flow in business, the conversation revolves solely around income. The line of thought goes, if I just bring in more income, then I won’t have cash flow problems…

Wrong. 

You can have just as many, if not more, cash flow issues in your business if you’re making millions vs making $20k/year. 

Why?

Because your cash flow is not about your income. It’s about the flow in AND out. And the #1 thing that messes up your flow is the OUT. The #2 thing? Timing. But that is a conversation for another post.

Cash Flow in Business –
What success looks like:

cash flow in business what success looks like

When your cash flow in your business is working well you have ample amounts of cash on hand to pay your bills, contractors, and other payments without needing to transfer money, put in money from your own pocket or make payments late because your funds ran short. 

It has three key elements that need to be in place to be successful:

  1. Enough cash coming in at the right time
  2. Cash going out at the right time
  3. Buffer for unexpected costs

When you have your cash flow dialed in it means you have crystal clear clarity on:

  1. Exactly how profitable your business is
  2. How much you are truly bringing in 
  3. How much you are really spending 
  4. Whether you can afford to hire help or not
  5. Whether you can take more income out of your business and into your personal life

Get support with your cash flow