Cash Flow - the Lifeblood of Your Business Cash flow is the lifeblood of a business. Cash is absolutely critical in the growth and well being of a business. Small business owners must plan and prepare for all future events and market changes. The most important aspect of planning is effective cash flow management. Failure to properly plan cash flow is one of the leading causes for small business failures.
Cash flow serves several purposes.
First, it is used for meeting normal cash obligations such as paying bills. Second, it is held as a precautionary measure for unanticipated problems. Third, it is held for potential investment purposes. Operating cycle is defined as the system through which cash flows from the purchase of inventory through the collection of accounts receivable. It measures the flow of assets into cash and is, in effect, a business stopwatch.