The single most important number for short-term business survival. Profit determines long-term viability; cash flow determines whether you can pay the bills due next week.
Definition
Cash Flow - the actual money moving in and out of a business over a period - cash collected (from customers, loans, investors) minus cash paid out (to vendors, employees, lenders). Distinct from profit, which is what was earned on paper.
Common uses
- Short-term survival - whether the business can cover bills due this week / month
- Cash flow forecasting - the 13-week rolling projection that anticipates crunches
- Investment decisions - capital allocation depends on cash availability, not profit
Watch out
Don't spend against profit without checking cash. Profitable businesses run out of cash regularly - one of the most common failure modes for fast-growing companies.
Full explanation: What Is Cash Flow.