Cash is King! - The Power of Positive Cash Flow

"Cash is king" is a common saying in the economic development sphere. When a business has cash available, it means the business is healthy and the owners/managers understand the importance of maintaining cash. If there is ever a bind, they can likely get out of it because there is cash on hand. Even if the business is not profitable, having cash indicates its healthy.

Positive cash flow is another factor in pursuing additional financing for your business. Having this will let a banker or investor know that they can put money into the deal and it will actually go towards building up the business instead of simply "paying off" old debts (even in the case of refinancing). Also shows that you know how to handle money and can be a good steward over it. Even when doing business projections, make sure you are cash flow positive!

Cash flow is measured by looking at the cash flow statement. Different from a Profit and Loss Statement or a Balance Sheet, Cash Flow Statements indicate the cash flowing in and out of a business on a regular basis (daily, weekly, monthly, yearly - whichever is an optimum measure for the flow of cash in your business). Cash flows when:

• you pay your suppliers (or their invoices)
• customers pay you with cash (or they pay their invoices)
• you pay rent, utilities, and other bills;
• you receive the pay out of a loan
• you invest in the business with personal cash
• you re-invest income from the business

So you see, cash flows in and out all of the time. You can best keep track of this with tools such as Quickbooks, Peachtree Accounting - any accounting software, or even spreadsheet software like MS Excel, OpenOffice (free), or Google Docs (free).

Keeping track is one thing. Understanding what to do with the information is totally different. You can find great ideas for managing cash flow from the article 8 Tips and Resources for Managing Your Business Finances. Check out Artisanal Crunch's story for a tale of what can happen when you do not understand cash flow, even as a multi-million dollar enterprise.

What are some things that you do to make sure you remain cash flow positive? Please share in the comments.