Sabre Finance
An innovative approach to investing in small business in Alabama


What is....Cash Flow?


Cash flow is the money that flows in and out of your business monthly. Although it may seem that cash flow only goes one way, out of the business, it does indeed flow both ways.

  • Cash can come in from customers or clients who may be purchasing your products or services. If customers don’t pay at the time of purchase, some of the cash flow could come from the collections of accounts receivable.

  • Cash is going out of your business with expenses, rent or mortgage, in monthly loan payments, tax payments, or any other accounts payable.

Think of cash flow as a picture of your business checking account over time. If more funds are coming in than going out then you are in a positive cash flow standing and you have plenty of money to pay your expenses. And of course if there is more money going out than coming in your account is in danger of being overdrawn, and you will need to find money to cover overdrafts.

Cash flow is very important and is one of the biggest reasons small businesses tend to fail. The SBA says that “inadequate cash reserves” are a top ten reason startups don’t succeed. They call it “running out of money” and that will definitely shut you down faster than anything else.

When starting a business, dealing with cash flow is extremely difficult initially. A lot of money is going out in the beginning stages of any business. We like to call this the planting stage, one of the most important stages of starting a business. At this point you may have very few people purchasing your goods and/or services. Most people will take a leap of faith and apply for a line of credit to keep them steady until they get into a positive cash flow situation.

The best way to keep track of cash flow is to run a monthly cash flow report. Running a cash flow report will allow you to see the changes that are taking place with cash from the different business activities. Depending on the type of business operation you may need to track cash flow more frequently, possibly weekly.

Samuel Kellett