Cashflow is more Important than Cash
Your first thought was probably, “She’s crazy!”
Think about it. Cash is critical to pay for rent, utilities, and other business expenses. But how do you get cash? Through cash flow!
The graphic above shows a tank. Imagine that, instead of water in the tank, there is cash in the tank. If you never added to it, the tank would drain as you paid for rent, payroll, accounts payable, supplies, utilities, and more. At some point there would not be any cash left in the tank, and you would be out of business.
Cash flow is necessary to get cash. You have to have cash coming in so that you can pay payroll, accounts payable, loans, and other obligations. Payments are cash out.
How do you get cash inputs? Mostly through collections on sales. Notice I didn’t say sales. If you send out an invoice for work you performed, you have an accounts receivable, not cash. You cannot use an accounts receivable to pay the rent!
Other cash inputs are interest on bank savings accounts and investments, loans from lines of credit, and sales of assets.
When the customer pays, that is a collection and you can add that cash to the tank. When you have an accounts receivable, you are the bank for the customer.
Other cash inputs can also come from borrowing on lines of credit or using personal savings, interest on investments, or, less often, a sale of an asset.
Beware of the slowly leaking tank. If your company does not have profits, then the cash, even when collected, is less than it should be. Last week I wrote about the company that was losing a nickel for every dollar they took in for 12 years. They were fine until growth stopped because revenue growth gave them enough cash to operate until growth stopped.
Don’t be lulled into a false sense of security by cash inputs. You have to have more positive inputs, which come from collecting profitable sales, than outgoes so that the level of cash in the tank remains constant or gets higher. In other words, you have to have positive cash flow.
Cash is critical. Without positive cash flow, you will eventually have no cash.
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Understanding Financial Statement Trends
- Tuesday, May 19, 2026 – Duluth, GA
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Want to see whether Financially Fit Business is a fit for you and your clients?
This Week’s The Financially Fit Business Podcast:
Subtle Changes in Financial Statements – Part 7
In this series, I talk about why it’s important to pay attention to subtle changes in profit and loss and balance sheet trends. It’s best to spot them and resolve them before they become major cash flow, productivity, or profitability problems.
In Part 7, I discuss subtle changes in balance sheet debt to equity ratio trends and where to look if they’re headed in the wrong direction.
Click below to listen: https://financiallyfitbusinesspodcast.podbean.com/
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