This post originally appeared on the Pulse blog, but we wanted to add an abbreviated version here in case you missed it.
Cash flow is the movement of money into, through, and out of your business.
Basic economics are at play. Regardless of the incentives for running your business, you need cash to operate, because it takes money to make money. Without profit, you cannot grow. And you can’t have profit without healthy cash flow. The flow of cash is about the timing of your income and expenses. If your costs exceed your profits, then you will be operating in the negative.
Nine times out of ten, you can trace the failure of a business back to negative cash flow. And as often, you will notice that the owners of successful, profitable businesses proactively manage their cash flow.
But they also watch their cash flow projections. They plan for growth because rapid growth can be just as much of a threat as losing a major contract or a thousand customers. Both drought and a flood expose weak infrastructure.
Projecting cash flow is important because you need to anticipate when income and expenses will hit so you can plan for growth, manage lulls and decide when to take cash out of the business or reinvest profits.
So what are the steps for accurate cash flow projection?
First, read this tutorial on using Pulse to track actuals versus projections.
You’re already aware of your company’s current expenses: compensation, office space, marketing and advertising, equipment, technology, and so forth. So next, put those into Pulse.
Then add your income (again, use the aforementioned tutorial as a reference).
You'll see how Pulse helps you to quickly and effectively place expenses alongside all of your accounts receivable. The more accurate your predictions, the better your planning.
Cash flow isn’t just about how much money comes in and how much goes out. It’s about when it comes and goes. Pulse helps you see how different variables affect profitability.