Cash flow is a critical financial measure for business managers and lenders. Understanding how and when money is earned and spent is one of the best methods to spot potential problems in a business, and to plan how to address them.
Analyzing cash flow is one way that lenders determine the feasibility of financing a new venture. It is common for new businesses to struggle with cash flow as upfront capital purchases are made and markets are established. In addition, many businesses with seasonal sales will show some months with high income and others with none. Learning to budget helps managers allocate funds throughout the year to have money available in low income times. Short-term cash flow problems can be addressed through operating loans or sale of capital assets. Additionally, when considering financing for new capital purchases, the projected payment should be factored in to the cash flow analysis.