Every business owner knows and understands that cash is the lifeblood of their enterprise. Without cash flowing into your business, bills, salaries, fees, and operating expenses are not paid. Without cash, inventory cannot be purchased and production will soon grind to a halt. Without an initial cash flow a business is doomed to fail before it can even get started.

So what is cash flow anyway? One definition of cash flow states that it is the result of the flow of cash (money) through your business from outlays for supplies, products, raw materials, sales, and operating expenses to income from sales or other sources. Similar to blood flowing throughout any organism, cash generated from sales carries energy into the body and flows back out through the creation of a product or service. In between, cash is used to meet the cost of doing business, paying operating expenses and debts on time, or it may be stored for future use. Planning for how and when a business needs cash depends upon a number of variables and is generally referred to as cash management.

Business managers understand that there are only two places where a business can get cash. Cash is generated from business operations that earn a profit, or cash can be inserted into a business from an outside source such as a bank or the owner's investment. It is generally true for most business that cash does not flow into the business in a steady state fashion. Income may vary at times with the demand for sales, product seasonality, and the condition of the economy, natural disasters and many other variables. On the other hand, cash is consumed inside the business in many different ways and at many different times during the business year.

Understanding cash flow management is important as it goes beyond just making sure that the balance of cash on hand and the business bank account balance agrees. At times, cash will flow into the business in sufficient quantity to cover expenses and then some. At other times, there will be cash shortages and not enough money to cover the bills unless the shortage has been planned for in advance. This is an important concept, generally referred to as the cash flow cycle.

Good cash flow management practices requires planning for fluctuations or delays in all working capital accounts, including cash, inventories, and accounts receivable as well as accounts payable, loan payments, discretionary spending, the purchase of capital assets and dividend payments. In its

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