Updated: Feb 10
In this article, I will explain the difference between cash flow importance in business and cash flow importance for individuals.
What is the meaning of cash flow for individuals, anyway?
In plain language is the money coming in and out of our personal accounts.
As you know we have chequing accounts, savings accounts, line of credits, home line of credits, car financing, TFSA, RRSP, RESP, life insurance, and so on.
Usually, the income goes first into a chequing account and from there it gets distributed to some other accounts. Sometimes it gets distributed to an RESP, TFSA, or RRSP directly from the income and after that, what remains, goes into the chequing account and distributed.
Why is cash flow important for individuals?
It is paramount to get control of our cash flow in order to have positive cash flow or we can pill up on debt and lose assets if we have some. On a positive note if we are in control, we will have money left to invest or use for entertainment and in the end, have enough money in retirement.
What is the meaning of cash flow for businesses?
The statement of cash flows, or the cash flow statement is a financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company.
Why is cash flow important for businesses?
The cash flow statement measures how well a company manages its cash position, meaning how well the company generates cash to pay its debt obligations and fund its operating expenses. It is necessary for daily operations, taxes, purchasing inventory, and paying employees and operating costs.
Positive cash flow means clearly that the business runs well while negative cash flow can result from a company's growth strategy in the form of expanding its operations.
By studying the cash flow statement, an investor can get a clear picture of how much cash a company generates and gain a solid understanding of the financial well being of a company.
Is there a difference between cash flow for individuals and cash flow for business?
Not quite, both of them follow the same principles. The main difference would be that as individuals usually the income comes from one direction only and usually is paid in time. On the other side, self-employed individuals and businesses get the money from different sources and payment delays affect the income and cash flow.
Feel free to contact me if you need help with improving your cash flow: