8-34. Toward the beginning of this case, the following statement appears:
“Almost all small businesses experience cash flow shortfalls.” What is cash
flow? Why is cash flow so critical to an entrepreneurial firm’s success? Why
do almost all small businesses experience cash flow shortfalls?
Cash flow is an amount of money, cash that is transferred in and out of a
company or a business. It is movement of cash in particular period. also, it
shows how much money is available in the end of particular period.
Often there are shortage of cash in entrepreneurial firms. Most of the firms sell
their products or services with future benefits, with consignations so because
of that there is not enough cash to cover their current expenses or future cost
of goods/services. So, importance of cash flow is to control movement of cash
and to understand your financial abilities to continue business running. There
are two kind of cash flows, positive and negative. Positive cash flow means
that you have more money then was spent so your firm can operate. If the
cash flow is negative it gives you worrying that there is not enough money so
company need to cut their expenses.
