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Cash Flow: Definition and Meaning
Definition
Cash flow is the movement of cash into and out of a business during a period.
Why It Matters
Profit and cash flow are not the same. A business can report a profit while still experiencing cash pressure because of unpaid receivables, inventory purchases, payroll, debt service, taxes, capital expenditures, project timing, or retainage.
Regular cash-flow planning helps management anticipate needs and begin important discussions with lenders, owners, vendors, and advisors before circumstances become urgent.
Example
A business reports a profit for the month but has limited cash because several large customer invoices have not yet been collected.
Related Terms
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