I read a lot about the definition but I can’t really get the hang of it.
Is it the cash that the company is left with at the end of the period? (Meaning the cash in their bank accounts *hypothetically*)
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As an example, our company has to spend $100,000 to buy our best product. Then it takes 6+ weeks to ship from China. Once we get it here, we can sell it for $200,000. So on paper, our company looks very profitable.
But there’s that gap from when we have to pay for our products to when we can sell our products that is REALLY challenging. Our bank accounts are at -$100,000 for a couple of months, unless we can sell other products in the mean time. Our bank and our suppliers really don’t like it if our accounts hit negative numbers and we stop paying bills. Plus our employees want to get paid on time, and so do the utilities and mortgage. So we need to make sure we have other sources of income to cover that gap. That’s why it’s important to monitor cash flow.
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