Cash Flow Management in Business

The definition of cash flow management for business can be summarized as the process of monitoring, analyzing, and optimizing the net amount of cash receipts minus cash expenses. Net cash flow is an important measure of financial health for any business.

One of the most common reasons cited as why businesses fail is poor cash flow management. If your business constantly spends more than it earns, you have a cash flow problem.

For small businesses, the most important aspect of cash flow management is avoiding extended cash shortages, caused by an overly large gap between cash inflows and outflows. You won’t be able to stay in business if you can’t pay your bills for an extended period of time.

Unless some or all of the development can be sold before construction, developers often run into cash flow problems before the development begins to sell off, particularly if the property market happens to soften during construction. Many property developers have been forced into bankruptcy because of negative cash flow for extended periods of time.

Any business that’s undergoing rapid expansion can run into cash flow problems as well. Business expansion generally involves higher labor costs as new employees are hired, higher rent for additional space, higher advertising costs, and more capital investment for new facilities, equipment, and so on. Having to maintain increased levels of inventory can also eat into excess cash.