Again on finances, we will briefly consider the cash flow today, and I would like to make this as simple as it can be. Cash flow is basically moneys coming into and out of your business. Of course there are lots of definitions of cash flow you will find, and some just complicate the whole thing especially for those with limited knowledge in finance. In audited financial statements especially, you will find what accountants called cash flow statement or statement of cash flow. While this statement serves a good purpose, not many folks really get it, and I’ve seen this disturbing some accountants with decades of experience. But this is a by the by.
We want to simply talk about moneys coming into and out of the business. The term liquidity is oftentimes used to describe the ability of an enterprise to pay its debts or what it owes various people in a timely manner or not. Liquidity is closely related to cash flow. Many businesses of various sizes have not managed this aspect very well, and this has triggered business closure sometimes in abrupt and unpleasant ways. In fact, poor liquidity management brings down a business faster than loss making. Now, what are the important things to know about cash flows and business liquidity? Let’s consider them below.
In light of all the above, I trust that you appreciate why an entrepreneur should understand his or her cash flows. If you chose to be an entrepreneur who always appears financially unprepared, or continuously living on life support (I mean funding drip), it’s your choice. Isn’t it? By the way, that needle the financiers use is not very different from the ones our learned medical friends use. Do you like pain? Of course not.
The Wise Entrepreneur