Cash Flow

Cash flow is the difference between the amount of cash coming into the company from all sources and the amount of cash flowing out of the company to any source.  Cash flow does not equal profit or loss.  Cash flow does not consider the source of the cash or the destination of the cash. Cash flow only counts cash.

Growth is Expensive

It takes money to make money, we've all heard that.  If you understand that simple statement then you understand the importance of cash flow.  To be successfull and self sustaining over the long term a company must be profitible and cash flow positive.

Growth uses cash, lots of it. For business it’s growth that often puts the company into financial difficulty.  The company is profitible, growing and cash poor. If the company cannot pay its bills it dosen't matter how profitible it is, it is still in trouble. If you are growing you are spending cash to sustain that growth.  You must manage your cash to remain a viable company, no matter how profitible the growth might be.

Is Profit the Same as Cash Flow?

A business can be cash flow positive and lose money, it can also make profits and be cash flow negative. Profit or loss are not directly connected to cash flow.

Money from investors or the sale of property, as examples, are positive additions to cash flow but the funds were not the result of operating income.  The cash was the result of an extraordinary event.  In such events, even if the company is operating at a loss the event may create enough additional cash to create cash flow, at least for the period in which the the extraordinary event occured.