Better understanding of cash flow could help small businesses

When it comes to proper management of a business' finances, too many entrepreneurs are losing out on important revenue due to poor cash flow management. That is the opinion of Elisa Waldman, a consultant at the Kansas Small Business Development Center at Johnson County Community College, who wrote in the Kansas City Star that business owners need to improve their habits.

To improve one's habits, Waldman suggests entrepreneurs look at three specific areas in their financial records that may often be overlooked: income taxes, owner's distribution and repayment of loan principal. Waldman adds that these three areas are typically accounted for once profit has been calculated.

"Cash flow, unlike profit, tracks all earnings and expenditures of money," Waldman writes. "Cash flow is not used to determine profit or taxes; rather it determines whether the business has enough money in the bank to pay bills, make payroll and buy more materials."

It is important for every small business to have the system in place to accurately monitor all financial transactions, including accounts payable and receivable. With proper systems in place, entrepreneurs can avoid pitfalls like duplicate payments and run a more viable, profitable business. 

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