“Happiness is a positive cash flow,” is a popular saying in the business world for good reason. Cash flow is the total cash and cash equivalents circulating in a business. A business’ cash flow position is expressed on a cash flow statement that records all the cash moving in and out of the business.
A positive cash flow is an indication that the business’ liquid assets have grown, allowing the business to pay debts and expenses, fund its operations, and even pay dividends to shareholders. A negative cash flow, on the other hand, is an indication that a company’s liquid assets are decreasing, meaning it has little or no liquid cash to settle debts, pay expenses, or reinvest in operations.
Although large companies usually have large accounting departments that use sophisticated accounting tools to manage cash flow, small businesses often have to rely solely on their bookkeepers. Small businesses have to run their operations with a keen focus on cash flow, as it is the difference between staying open and closing. Up to 60 percent of businesses that close attribute their failure to cash flow problems.