I’ve heard so many podcasters, tiktokers, and youtubers discussing how important it is to understand cash flow if you want to become successful. My personal experience has taught me that if you don’t take charge of it, it’ll take charge of you. Trust me, you don’t want that…

I believe that we’re on this planet to have the broadest possible experience of human existence: the full range of emotions, flavors, colors, temperatures… you get the picture. Until a few years ago, I always felt a little like dealing with money matters was, absurdly, in contrast with this philosophy. Don’t ask me why, I still don’t know the answer to that question, but that’s the way it was.

But when you are running your own business, sooner or later (and sooner is definitely better) you learn that managing cash flow is not about limiting your experience of the world, it’s about how to thrive as a business and as a human being.

What is Cash Flow?

In business and in your personal finances, cash flow is what happens when money moves in or out of your hands. Think of the blood running through your veins right now. If that blood stops flowing, you’re dead. The same applies to your cash flow. Don’t ever let it stand still…

Why Does Cash Flow Matter?

When I started my first business, I wasn’t even thinking about the money (terrible idea). I worried about bringing work in, getting it done, and sending it back out. I just presumed the money side would take care of itself, as long as I put in the hours and did my work well.

Needless to say, that’s not what happened. It wasn’t until I decided to take a class in basic bookkeeping that I realized just how naïve I had been.

As a business, your success lies in your ability to maintain a steady cash flow to pay your employees, invest in growth, and cover your expenses. In your personal life, managing cash flow will help you avoid debt, save for the future, and achieve financial stability.

Cash Flow in Business

Businesses track cash flow through a cash flow statement, which breaks it down into the various inbound and outbound items. The simplified concept is this:

Your net cash flow is the result of your total cash inflow, minus your total cash outflow. I realize this sounds logical and hardly worth mentioning but trust me on this: you need to make a conscious decision to manage things this way. No matter how good your math skills are, you’re not going to be able to “manage it in your head”.

If the result of this subtraction is positive, your business has positive cash flow. If the result of the subtraction is negative, you have negative cash flow.

Keep in mind that that negative cash flow may be the result of a conscious decision. Perhaps the money was spent on something that will improve your ability to bring in more money and grow your business. In general, though, the aim is to achieve positive cash flow as much as possible.

When you run a business, you need to create cash flow statements and projections. This gives you a picture of your current situation and an idea of what to expect. If you can foresee cash flow issues with enough warning, you can make decisions and take action to prevent trouble.

Cash Flow in Personal Finance

I have come to believe we should, to some extent, be taught to run our personal expenses like a business from early on.

Your individual, personal cash flow will be the result of income minus expenses.

Predictably, there are some basic steps you can take to improve your personal cash flow:

• Increase your income: think about side hustles, investments, or career opportunities.
• Reduce expenses: look at your budget and cut out unnecessary or unwise spending.
• Build an emergency fund: if you can save an amount of money to act as an emergency fund, financial bumps in the road will not turn into major setbacks.

How to Manage Your Cash Flow

• Keep Track of Your Money: whether you use an app or a spreadsheet, make sure you are keeping your finances under control, that you know where your money is going.
• Plan for Irregular Expenses: when you draw up your budget, you need to account for yearly costs like insurance or taxes, and other irregular expenses like car maintenance.
• Invest Wisely: investing can be a good way to grow your wealth. Don’t take my word for it. Find a real expert and get advice from them.
• Avoid Unnecessary Debt: this sounds like something you already know, but think for a minute about how the whole system seems wired to make you pay off every little purchase with high-interest loans. Even small purchases. And each time you do that, you’re paying more than you need to.

So, there you have it. Those are the basics. There is much more to discuss and explore, but I’ll be breaking some of it down in future posts. In the meantime, just think about some of these concepts. The reason I am even writing posts like this is not because I am some expert on the subject – far from it (DISCLAIMER: I’m not an expert and strongly advise you seek advice from somebody who really knows about money and business rather than making uninformed decisions). It’s actually because I realize how easy it is to get into things without being fully aware. The information is out here for us to find, but sometimes we’re not looking for or at it until it smacks us in the face.

If you want to do some further research, here are some resources I found helpful;

Cash Flow – Overview, Types, and Uses

What is cash flow and how do you manage it?

Business and Personal Finance: The Basics of Cash Flow – Finance City Center

And if you are just getting started (in your adult life, in your business, or in being conscious about your financial decisions) consider taking a bookkeeping course. It sounds as interesting as reading the instruction manual for your hairdryer, but you might be surprised.

For example, here is a series of 4 courses from Coursera, it should only take you a few weeks and it might change your life:

Intuit Academy Bookkeeping Professional Certificate | Coursera