Cash Flow
Cash flow is the net movement of cash into and out of your business over a period of time. Positive cash flow means more money came in than went out. Negative cash flow means you spent more than you received, even if you are profitable on paper.
Types
Operating Cash Flow
Cash generated by your core business operations, including collecting payments from customers and paying suppliers, employees, and overhead.
Investing Cash Flow
Cash spent or received from buying or selling equipment, property, or investments.
Financing Cash Flow
Cash from loans, investor funding, or repaying debt.
Why it matters
Profit and cash flow are not the same thing. A business can be profitable on paper but still run out of cash, especially when customers pay slowly, inventory ties up capital, or expenses arrive before revenue does. Cash flow is what keeps the lights on.
Real-world example
A restaurant is profitable for the year: $180,000 revenue, $150,000 expenses, $30,000 net income. But in January and February, revenue drops 40% while fixed costs stay the same. Cash flow goes negative for two months. Without reserves or a line of credit, even a profitable restaurant can close.
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