The Importance of Cash Flow

Written By: Rick Vaughn on October 6, 2008 One Comment

If there is one subject that need you to understand in the world of finance it is cash-flow. Cash-flow is the blood of any business or investment and is the difference between you driving a Pinto versus a Lexus. It’s funny (or sad) this principle was never taught to me till after college.

So what is Cash-Flow?

For a business it measures a company’s financial health. Cash flow is cash receipts minus cash payments over a given period of time; or in other words, net profit plus amounts charged off for depreciation, depletion, and amortization.
Simply put, it is the money you have left over after all bills and expenses have been paid.
Want to see what your cash-flow is??? Click Here!

Why is it so important?

Positive Cash-Flow means you’re doing something right. That means that you are living within your means and that you will have a surplus at the end of the month in which you can save or invest.
Negative Cash-Flow on the other hand means your doing something fundamentally wrong. That means you don’t have the money to cover your expenses and need to assume drastic action to change that quickly.

What should I be looking for?

There will be some months in which you will lose money. However, if it becomes a pattern over a few months then is time to panic.
Remember to add in the car insurance, property taxes or home insurance; those big payments that you don’t make monthly.
I suggest you do these each month or when you are about make a big purchase; i.e (Home, Car or Boat).
Every month you should make it a goal to improve your cash-flow in increments.

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