Field Notes Blog > A Lesson in Cash Flow
A Lesson in Cash Flow
January 23, 2019
Cash flow is a critical financial measure for business managers and lenders. Understanding how and when money is earned and spent is one of the best ways to spot potential problems in a business, and to plan how to address them.
Analyzing cash flow is one way that lenders determine the feasibility of financing a new venture. It is common for new businesses to struggle with cash flow as upfront capital purchases are made and markets are established. In addition, many businesses with seasonal sales will show some months with high income and others with none. Learning to budget well helps managers allocate funds throughout the year to have money available in low income times. Short-term cash flow problems can be addressed through operating loans or sale of capital assets. Additionally, when considering financing for new capital purchases, the projected payment should be factored in to the cash flow analysis.
At times, business decisions based on cash flow can be challenging. It is tempting to rush ahead in new ventures without fully considering future expenses. However, the time spent properly mapping out projected income and expenses can have huge payoffs in terms of overall success. I believe that being forced to confront the reality of financial management at the start of our venture helped my sister and me make wiser decisions as youth livestock breeders and now as farm managers. A few years (and dozens of cows) later, I don’t regret that second bred heifer but I am incredibly thankful for my Dad who took the time to demonstrate the importance of counting all the costs for a project.