Cash Flow: Understanding Money Movement in Your Business
Learn what cash flow means, how lenders evaluate it, and why cash flow management is essential for business financing.
What Is Cash Flow?
Cash flow is the net movement of cash into and out of your business over a specific period. Positive cash flow means more money is coming in than going out; negative cash flow means the opposite. Cash flow is distinct from profit—a profitable business can still run out of cash if timing misaligns.
Lenders focus heavily on cash flow because it determines your ability to make loan payments. Strong, consistent cash flow is often more important than profitability for loan approval.
Types of Cash Flow
Business cash flow is typically categorized into three types.
| Type | Description | Examples |
|---|---|---|
| Operating | Cash from core business | Customer payments, supplier costs |
| Investing | Cash for assets | Equipment purchases, property sales |
| Financing | Cash from/to funders | Loan proceeds, loan payments, dividends |
Cash Flow vs. Profit
These concepts are related but different.
- Profit is an accounting concept; cash flow is actual money movement
- Profitable businesses can fail from cash shortages
- Non-cash expenses (depreciation) affect profit but not cash
- Accounts receivable is revenue but not cash until collected
- Inventory purchases use cash but are not expenses until sold
Many businesses fail not from lack of profitability but from poor cash flow management. Fast growth can actually worsen cash flow as inventory and receivables increase.
Improving Cash Flow
Several strategies can improve your business cash flow.
- Invoice promptly and follow up on collections
- Offer early payment discounts to customers
- Negotiate longer payment terms with suppliers
- Manage inventory levels carefully
- Lease instead of buying when appropriate
- Use lines of credit to smooth fluctuations
- Review pricing to ensure adequate margins
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Read more →Important Disclosure
Not Financial Advice: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. You should consult with qualified professionals before making any financial decisions.
No Guarantee of Financing: Liminal Lending Co. is a business loan marketplace that connects borrowers with third-party lenders. We are not a lender and do not make credit decisions. Submitting an application does not guarantee approval or funding. Loan terms, rates, and availability vary by lender and are subject to borrower qualifications and lender criteria.
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Rate Information: Rates, terms, and fees mentioned in this article are estimates based on publicly available information and may not reflect current market conditions or specific lender offers. Actual rates depend on creditworthiness, business financials, and lender policies.
Information May Change: Financial markets, lending regulations, and economic conditions are subject to rapid change. While we strive to keep our content accurate and up-to-date, information in this article may become outdated. Always verify current rates, terms, program availability, and regulatory requirements with lenders and official sources before making financial decisions.