Belk On Business

Measuring cash flow is basic arithmetic. What is my cash balance at the beginning of a month less my cash at the end of the month? If the amount increases, my business had positive cash flow. If negative, negative cash flow. Dunn and Bradstreet research shows that businesses have a 44 percent higher chance of survival over five years if it carefully plans and manages its cash flows. Cash flows increasing or decreasing can be a result of any number of reasons. Following are two reasons, both related to accounts receivable: 1) The timeline to collect accounts receivable is greater than the timeline of payables. If a business has only one month of cash but it takes two months to collect receivables, cash will trail receivables by one month. Depending on the spread between A/R timeline and A/P timeline, profit margins and the amount of cash spent that only hits the balance sheet determines how long a business can operate. 2) Similarly, if it takes months longer to collect on receivables than the timeline to produ