Cash flow definition

Cash flow is the money moving into and out of a business in the form of disbursements to pay for goods and services purchased by the company and cash collections after the business sells and delivers products and services to customers. Cash flow can be positive or negative.

Positive cash flow indicates a surplus of cash, which negative cash flow indicates the need to add cash from reserves or other sources, such as a bank loan.

Projecting future cash flow is an imperative management task, so you can determine when you could be exposed by negative cash flow and plan for a targeted cash infusion. But more than almost anything other management task, including profitability, cash flow is a dynamic that must be managed every day.

A business may survive for months, even years, without making a profit, but no business can survive more than days with negative cash flow.

Remember, profit is the queen of business, but cash is king.