Cash Flow for Entrepreneurs

February 9, 2025

Accounting | Entrepreneurship

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Hector Galicia

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One of the biggest mistakes entrepreneurs make is focusing only on sales and profits without considering cash flow. Having a lot of sales doesn't mean the business is healthy if money doesn't come in at the right time to cover expenses.

Cash flow is the amount of money that comes in and out of your business over a given period of time. It's the fuel that keeps any business running, no matter how small.

Why is cash flow important?

Because it allows:

  • Pay suppliers, employees and taxes on time.
  • Avoid unnecessary debts due to lack of liquidity.
  • Make better investment and financing decisions.

The three parts of cash flow

  1. Operating cash flow: Everything related to normal business activities, such as customer collections, supplier payments, salaries, rents and taxes.
  2. Investment cash flow: Purchase and sale of assets, such as machinery, equipment or investments in other businesses.
  3. Financing cash flow: Bank loans, issuance of shares, partner contributions or payment of dividends.

Common mistakes that affect cash flow

  • Not controlling accounts receivable. If credit is granted to customers and they are late in paying, the company may run out of liquidity.
  • Excessive inventory. Having too much product in stock means money sitting around that can't be used.
  • Unnecessary expenses. Subscriptions, trips and non-essential purchases can affect cash availability.
  • Over-indebtedness. Taking out loans without a clear strategy for repaying them can compromise the financial stability of the business.

How to improve cash flow?

  • Speed up collections. Reduce credit terms, implement payment reminders and offer incentives for prompt payment.
  • Optimize payments. Negotiate better conditions with suppliers to pay over longer periods without affecting the business relationship.
  • Reduce unnecessary expenses. Analyze costs and eliminate what does not add value.
  • Manage inventory better. Do not buy more than you really need and maintain a balanced stock.
  • Make cash projections. Use tools such as Excel or accounting software to forecast future income and expenses.

Conclusion

Cash flow is not just an accounting issue, but a vital decision-making tool. It doesn't matter how many sales are generated if there is no cash available to operate. If cash flow is controlled, the business will be stronger and ready to grow.

If you need help with cash flow management, in TAX ID MEXICO We can advise you so that your company always has liquidity. Contact us at hgalicia@taxid.mx or to +52 3310235948.

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Written by Hector Galicia

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