Cash flow

 Store closing down signs
Cash flow problems can lead to a business's closure

Cash is generated by a business through the sale of goods or provision of a service. It is important that businesses have enough cash to pay employees, buy supplies and cover business expenses.

Cash flow is all the money that comes into and goes out of a business. There must be more cash coming into the business than there is going out to avoid the company going into liquidation. This would mean they are no longer able to trade.

Cash flow problems may occur for many reasons:

  • low sales
  • too much money tied up in stock
  • customers taking too long to pay their bills
  • suppliers not allowing credit or a limited credit period
  • owner taking too much money out the business, this is also known as drawings
  • over-investment in new assets such as machinery or equipment
  • an increase in expenses