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Cash Flow; The Lifeblood of a Business

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Money is meant to change hands between people, organizations and governments. Money is the lifeblood for economic activities.

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Money, which represents the prose of life, and which is hardly spoken of in parlors without an apology, is, in its effects and laws, as beautiful as roses. —Ralph Waldo Emerson

For every business, money is vital for daily activities. The movement of money in and out of a business is known as cash flow. Often the process of keeping track of money starts from the beginning of sales process. In business, the point of keeping record of cash flow isn’t to get a fix on money in business rather it is to make sure that there’s always money on whenever it is needed. In a business, it is normal for money to always flow into a business in the first stage of the business only if you want to go out of business on time. Cash flow problems can be the major problem of a business and as a business owner probably a new business, it is your responsibility to keep record of the cash flow in your business. It is up to you to watch as well to initiate the flow of money in and out of in your business.

One of the main reason for business failure is the lack of capital. Starting a business without enough funds to pay bills and creditors is enough reason for a business to go bankrupt and at such, it is of great importance to perform an in-depth analysis on the cash flow of the business. It is important to always compare sales and expenses in businesses and when expenses are above income then the business is having problems.

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When a Business is Negative Cash Flow

• When the business bank account is dropping below the normal average due to unnecessary expenses. Not all decline in bank account is negative, if there is a major reasonable expense but when expenses are becoming unreasonable and affecting the business bank account then an immediate action needs to be taken. • When there is low sales which starts affecting the normal expense • If you are a retailer, having goods/inventories for longer period than usual will affect the cash flow of the business and that show negativity for the business finance.

How to Escape Negative Cash Flow

  • When starting a business, it is advisable to keep cash reserves as it will be needed in taking drastic measures when there is a cash flow problem.
  • Increase the amount going into the business and reduce the amount spent on expenses.
  • In cases of a retail business, you could increase the amount of products reasonably.
  • Cut expenses in business

In Summary

The major reasons for a lot of business success and bankruptcy is cash flow, a close watch at how money goes in and out in business and properly managing the cash flow is a good way to keep a business striving.