In a typical company, an operating cycle begins with both cash and inventory. The inventory is purchased on account, typically payable in 30 days. When you collect payments, you increase your cash and reduce your accounts receivable. Maintaining an adequate balance of inventory and cash is a cornerstone of successful cash flow management. You may decide to keep your monetary reserves on hand as cash or in a business checking account.
Cash flow is simply the difference between dollars received and dollars paid out.
A good accountant can help you manage your cash flow more effectively. A monthly cash flow projection can help you anticipate cash deficiencies or surpluses and can be used to compare current figures to past months. If you have deficient cash flow, you have to change your financial plans to provide more cash. Actively manage your accounts and collect overdue balances quickly. The longer a balance remains unpaid, the less likely you are to receive payment.