6 Reasons Why Cash Flow Is Important to a Small Business

6 Reasons Why Cash Flow Is Important to a Small Business

A small business owner should not overlook the importance of acquiring new customers, earning a profit, and exceeding their sales goals or quotas. Cash flow is another vital aspect of a business’s success, but, unfortunately, some business owners don’t understand its importance.

Monitoring and managing a company’s cash flow is necessary to keep daily operations running smoothly, making it even more relevant than earning a profit. So why is cash flow essential to a small business? Consider the brief guide below to learn more about the concept and its benefits to small Canadian businesses.

Table of Contents

Understanding the Importance of Cash Flow

Cash flow is a bookkeeping term describing the money going in and out of a business. It is not the same as profits and sales, though many people equate the two concepts. A business owner may have cash inflows and outflows from sales and expenditures, respectively. However, cash flow is often more complex than that.

To understand how much money a company generates and how much it spends through cash flow, a business owner should consider how cash inflow is vital to its success. It involves everything that generates money for a business, including:

  •       Loan receipts
  •       Payments and sales
  •       Savings interests
  •       Investments
  •       External financing

Keeping track of a business’s sources of cash will reveal how much is available to pay for essential expenses like rent, workers, and group insurance for employees. The greater cash flow the business has, the more seamlessly it will operate and the more opportunities it will have for expansion and investments to grow the company.

Cash Flow Statements

How Small Business Cash Flow Differs From Profit

Profit and cash flow are not synonymous. A business can appear profitable and not have a positive cash flow.

Profit is how much money remains after an enterprise deducts its total costs from revenue. A company is in financial jeopardy if its operating expenses or expenditures are higher than the revenue because it functions at a loss instead of a profit.

The primary difference between profit and cash flow is that the latter is the net amount of money that transfers in and out of a business. Profit is what’s left after all payments.

Why Is Cash Flow Important to a Small Business?

Small business owners sometimes struggle to keep their enterprises afloat because they put more focus on generating sales. While that is not entirely the wrong business direction to follow, some businesses don’t receive money immediately after closing a deal.

For example, a business could sell services to a client and then invoice for payment. Receiving the complete payment could take days, weeks, or months. Even though the business made a sale, the cash inflow might not be immediate.

Without considering cash flow in its daily operations, a business could run into serious issues. While waiting for customers to complete their payments, outflow is still necessary to pay bills, employees, suppliers, and other debt.

Below are other reasons why cash flow is vital to the success of a small business.

1. Make Better Business Decisions

2. Know Where the Money Is Going

3. Manage Short-Term Debt

4. Acquire Financing

5. Grow Your Business

6. Navigate Downturns


Improving Small Business Cash Flow With Group Enroll

Now that you have a comprehensive answer to the question, “Why is cash flow important to a small business?” you can take your modest company to new heights by ensuring that your hardworking employees have the group benefits they need to be healthy, productive, and happy with Group Enroll.

Group Enroll is an insurance broker. At Group Enroll, we help businesses across Canada find the best solutions to grow their enterprises, including group insurance coverage.  We help people compare and pick the group insurance product that suits their needs, such as:

  • Extended Health Care
  • Group Dental Insurance
  • Group Disability Insurance
  • Group Life Insurance
  • Group Retirement Savings Plan
  • Health Care Spending Account (HCSA)

We partner with some of the nation’s leading insurance providers and will gladly help you secure affordable insurance products. Our address is 10 Great Gulf Drive, Unit 5, Vaughan, ON, L4K 5W1, but you can contact us at hello@groupenroll.ca or fill out our online quote form today.