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Why Cash Flow is Fundamental for Your Business

Why Cash Flow is Fundamental for Your Business

Cash flow is the movement of money in and out of your business and it is critical for your business to survive. It can be easy for your cash flow to go unmonitored, but carefully managing your finances will help to improve your cash flow.

Essentially, if you have more cash coming into your business than you do going out of it then your business is generally considered to have good financial standing. On the other hand, if you have more financial outgoings than incomings then your business is likely facing financial difficulty. Here, I share more about the importance of cash flow and why it is fundamental to your business.

Financial security

The most obvious advantage of having a healthy cash flow is better financial security. Especially in our current unstable economic climate having financial security in business is more important than ever. A healthy cash flow will mean that you’ll be able to create a financial buffer for your business meaning that if you do hit financial difficulty you’ll be able to use your buffer to help you navigate through it more easily.

Grow your business

Once you have a secure and steady cash flow coming in, you can think about growing your business. In turn, once you grow your business, you’ll be able to increase your cash flow and so the cycle should (hopefully) continue. Having a stable cash flow will give you more flexibility to be able to grow, hire new staff, and extend your products and services.

Better credit rating

A healthy cash flow means that you’ll be able to pay your staff and suppliers on time. Being able to pay on time will not only keep your staff and suppliers happy, it will also help to improve your credit score. Paying on time every time will help to build up a positive credit history for your business which means that lenders will be more willing to give you credit.

More opportunities

A healthy cash flow will mean that you’ll be able to explore more opportunities at less risk. This may include growing your business or investing into that slightly riskier project or product. Regardless of whether your opportunity pays off or not, with a positive cash flow you’ll be able to reap the rewards or soak up the damage with relative ease.

In this article, I’ve shared a few of the reasons why a healthy cash flow can be beneficial for your business. It can give you more opportunities to grow and can even improve your credit score. Keeping on top of your credit management will help you to know where your cash is going and help you to improve your cash flow.

Morgan Ramage
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