Most of the reasons that cash flow is so important, all relate to the health of your business. If you have positive cash flow, which means more incoming revenue than outgoing expenses and debt, your business is probably fairly healthy. On the other hand, having consistently negative cash flow probably means your company won’t be around much longer. Here are some of the other reasons why cash flow is so important to your business.
It helps you manage your debt
Whenever you take out loans or become otherwise indebted, you are essentially constraining your current cash flow in the expectation that future cash flow will improve. If you have a very positive cash flow currently, you’ll be much better able to make your loan payments and still operate your business effectively. A very tight cash flow would make loan payments difficult, and that means you might not be able to take on any loan which could help your business grow.
And speaking of business growth – the money for business growth has to come from somewhere, and if you have really strong cash flow, some of that incoming revenue can be set aside each month, for eventual use in expansion, new equipment, or inventory investment. It’s much better if you can fuel growth through your own cash reserves, because loans will act as a restriction on your present cash flow.
Handling critical situations and emergencies
If you should have a poor business month and you have no cash reserve to cover it, it could be disastrous for you. The same is true if a business opportunity comes up, and you have only a limited window to react to it – having the cash on hand to act might be important for your future success. As a matter of fact, any time that you experience a reduction of incoming revenues could be a big problem for your business, so having cash on hand is vital for keeping your whole business operating smoothly, rather than lurching from one monthly disaster to the next.
Improve cash flow with 5 Star Funding Group
If you’ve been having issues with cash flow, we may be able to help smooth out those issues. Contact us at 5 Star Funding Group, to discuss possibilities for covering those annoying gaps in cash flow, and keeping your business operating more smoothly.