Positive cash flow is something every business needs to strive to attain. Usually startups don't have it, and neither do failing companies.

QUESTION.
A couple of weeks ago I attended a face-to-face meeting with two SCORE volunteers in my home town. I signed up for the meeting because I wanted to get a few things staight about issues I was having in preparing my business plan. I was very pleased with what I learned. One topic that I did not grasp all that well was "Cash Flow." We must have spent 15 minutes on the topic, but I still don't really get it. What can you tell me about it.

ANSWER.
Yes, cash flow is an important topic when preparing your financials for a business plan. A business needs cash to survive. It needs cash to pay its payroll and to pay other bills. Sometimes the problem with cash flow is the business is giving out credit to its customers when it shouldn't or can't afford to do so. Other times the problem with cash flow is no revenues are coming in.

Cash flow means customers pay cash for goods or services they buy from a business. The business in turn has to use that cash to pay its bills and buy more goods or pay more payroll so services can be provided in the future. Then customers can buy more from the business the next day, next week, or next month. What goes around comes around. Cash comes in and then goes out. It's this motion of cash that is called cash flow.

Often a business owner will use a spreadsheet program like Excel with revenue and expense items listed along the left side of the spread sheet and days of the month listed across the top side of the spreadsheet. Revenues are entered as positive numbers and expenses are listed as negative numbers. The columns are each added up and the sum at the end of the day should be a positive number. And that positive number is moved to the top of the next day's column on and on.

If a column adds up to a negative number, then that signifies a negative cash flow. And that is not good. Strategic planning is necessary to avoid a negative summation happening in the future. As a result, cash flow is something that must be monitored at all times. It is a very important business concept to understand. I recommend you Google the term "cash flow" and read as much as you can about it. It will be time well spent for you.

I think I have answered your question. Good luck! Regards, -Jeff

Jeff Lippincott
SCORE.org Counselor
Princeton, NJ
scoreprinceton @ aol.com
www.scoreprinceton.org
http://www.jlippin.com/