Cash Flow: What You Need to Know

Starting a business is, in many ways, similar to raising a child. You can read books and other informational resources to prepare, but there will definitely be things that happen along the way that will come as a surprise. One of those surprises shouldn’t be having to learn about cash flow as you go. Read on to learn more about this important subject.

What Is Cash Flow?

Cash flow is the lifeblood of your business, so it’s important to understand it. The term refers to the net amount of cash and the equivalents of cash (something that can be converted into cash immediately, such as a bank account or a Treasury bill) moving in and out of a business.

A positive cash flow means that your liquid assets (which are assets that can quickly be converted into cash without losing much money) are growing. That means that you can settle debts, pay shareholders, and reinvest in your business.

Conversely, a negative cash flow means that your liquid assets are shrinking. That’s not good news – it means that you won’t be able to pay off your debts or shareholders. And forget about reinvesting in your business.

Is Your Cash Flow Negative or Positive?

How can you tell if your cash flow is negative or positive? A cash flow statement will give you this information.

Companies divide cash flow statements into three categories: operating cash flow, investing cash flow, and financing cash flow. Operating cash flow relates to the firm’s day-to-day operations, while investing cash flow deals with investments in your business through acquisitions (meaning that you were going to buy out a rival company). Financing cash flow involves how much money is coming in and out through your investors and debtors (which is important if you’re paying dividends or issuing bonds).

Cash Flow and Credit

Using the accrual method of accounting allows businesses to count credit as part of their income. “Credit” means that someone is going to buy something now with the understanding that he or she will pay for it later.

Accepting payments on credit is a necessity for businesses. A customer can’t always pay immediately. When a company accepts credit, they create a business relationship that allows them to gain a customer and eventually get paid. Accepting a credit card is a good proposition for firms, because the credit card company will pay the bill and then wait for the shopper to pay it back. That means businesses receive their money relatively quickly.

Power Pay Payment Processors: Helping You Accept Credit Cards Quickly and Simply

Do you want to accept credit cards to keep your cash flow positive? Contact Power Pay today. Our technology enables businesses to accept credit card payments from all types of credit cards. The setup is quick – you can start accepting credit cards within a day. Our fees are low, too, so you can pass those savings along to your customers. Contact us today at 1-800-483-8815 to learn more.