Counseling a Small Business: Explaining the Importance of Cash Flow

Counseling A Small Business
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Counseling A Small Business
I would explain the importance of cash flow by reiterating that inadequate cash flow constitutes one of the key reasons small businesses fail. Effective cash flow management improves a firm’s financial position, whereas ineffective management could result in financial problems (Rahman & Sharma, 2020). Cash flow influences the firm’s capacity to scale up its operations. Positive cash flow offers the firm more capital to acquire new machines or expand its business operations into other locations. More cash inflows empower the firm’s ability to reinvest and grow. On the other hand, negative cash flows force the firm to exhaust its cash reserves on payables rather than expand its operations. Therefore, understanding how finances are flowing in the enterprise and what it means for the firm places the business owner in a position to make strategic choices (Rivero, Gordimer & Company Accountants, 2018). In addition, the cash flow statement is essential within its role in enhancing the effectiveness and efficiency of decisions by the business financial managers in terms of facilitating prudent financial planning, the enterprise’s earning ability and its expenditure, deep insight into operating as well as financing ...