Cash flow refers to the amount of cash generated and received by an individual or business.
Cash flow is generally understood as the total amount of cash that a business generates and receives, along with the amount of cash that is used for organizational expenses. In general, cash flow control means immediately recording transactions in a cash journal. This is considered essential in order to have an accurate picture of the company’s financial stability, and can often generate information that can be used to improve the company’s financial condition.
A cash flow may be associated with the general operation of the business or with a particular component or project of the corporation. For example, when a department maintains a discretionary petty cash fund, a record of transactions is maintained. The idea behind recording small cash receipts as well as expenses paid will help the business recognize when an incidental expense becomes recurring and needs to be added as an item to the budget.
For a special project, like a marketing campaign, it’s a good idea to track cash flow. Simple record keeping will help the business determine if the effort is generating revenue at projected levels down the road. At the same time, monitoring where the money is going will help ensure that the project does not exceed the amount allocated to it.
One of the central objectives of any type of business is to maintain a positive cash flow. This is essentially a state where cash receipts consistently exceed cash payments over a given period. The routine production of net income is considered a basic indicator of financial health. Tracking transactions can often help identify potential problems that threaten to turn a positive cash flow negative before it actually occurs. When a negative trend is isolated, steps can be taken to adjust spending to more effectively use the revenue coming into the organization and maintain the company’s profitability.