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Small business is all about proper cash management. Cash management brings in understanding of cash flow. Cash flow is bi-directional in nature – outward and inward. Difference of the two is nothing but cash accrued over a period of time, and adds to profits generated form the business.
Cash outflow happens ate multiple points such as interest payable, cost of material (or goods purchased), salaries, electricity & telephone bills, and many others. Cash inflow mainly occurs from sales, interest earned, capital inputs and dividends earned from other investments in addition to sale of existing machines or equipments.
Any small business owner spends much of his time managing these two flows. (And outward going always seems to be much more than inward coming!). Fundamental principle of managing the cash flow lies in two elements – schedule of cash flow and writing down an expense before spending it. One should clearly spell out the outward cash flow, as it is easy to predict the flow behavior. This may not be totally applicable for inward cash flow. However, maximum care should be taken to be as much precise as possible to write down the expected dates of cash flow. This helps in monitoring the flow and manage cash in hand in accordance with the flow.
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