WHY CASH FLOW IS IMPORTANT

Cash flow is very important to the health of various businesses. It is said that revenue is vanity, cash flow is sanity, but cash is king. This means that it may look more beneficial to have possess large inflows of revenue from various sales, the most important thing for a business is to have cash flow.

Cash comes into a business mostly via sales of goods and services and it flows out via costs such as labour, raw materials, transport etc. The basic difference between the two aforementioned is the net cash flow. The net cash flow could be either positive or negative. A positive cash flow occurs when a business is gaining more money than it spends. While the negative cash flow occurs when a business is acquiring less cash than the amount it spends. With the cash flow, a business would be able to determine and ascertain the amount of profit it makes.

​Cash flow is very important as it makes it possible for a business to ascertain if it is making profit or not.