A larger proportion of businesses fail as a result of lack of cashflow than any other reason. This is the key reason making sound decisions about money is so relevant if your business is to succeed.
Almost every decision businesses make will result in either money flowing into the business or flowing out and every manager should plan for more money to flow into their business than is flowing out. While most managers get fixated with ensuring that their incomes are much more than their expenditure, the most important and closely related practice is to rather focus on the rate of flow – the two by the way are not the same.
One could have a very profitable enterprise where income exceeds expenses but the problem occurs when these incomes are receivables to be paid at a later date. So for instance you purchase goods at $1,000 and sell it for $2,000. On the surface, it looks like a good business with a positive financial position except when you encounter a situation where your creditor takes a much longer time to pay you.
While this may look and sound very simple, businesses that don’t have a sound financial plan get into cash flow problems that eventually lead to collapse of their businesses.