Why cash flow matters to a first-time founder
A business can be profitable on paper and still run out of money, because customers pay late while rent, wages and suppliers are due now. Watching cash flow shows when a bill will land before the money that covers it, so you can chase invoices sooner, ask suppliers for longer terms, delay a purchase or arrange funding in time, rather than finding out from a declined payment.
Examples of cash flow
In March, a business makes ¥1 million of sales. Customers pay ¥300,000 immediately, while ¥700,000 is sold on 60-day credit. The business also makes ¥400,000 of purchases: it pays ¥150,000 immediately and receives 30-day supplier credit for ¥250,000. March cash flow records ¥300,000 in and ¥150,000 out, giving positive net cash flow of ¥150,000. The remaining sales and purchases affect cash flow only when the customer pays and the supplier is paid.
Common misunderstanding
People use cash flow, revenue, and profit as if they were one figure. Revenue is what you sold. Profit is what remains after costs. Cash flow is what reached the bank, and on which day.
When to use it
Watch it every month from the day you have bills. Look harder before a tax payment, a new hire, or a customer who wants ninety days to pay. A bank balance that keeps surprising you is a cash-flow problem.