Just mentioning the term cash flow makes many business owners turn away, often saying, "Let the accountant handle it" or "We'll look at it at the end of the year."


I must say that this way of thinking is very dangerous, and it becomes even more perilous if you are in a business that requires a lot of cash flow.

Before diving into the topic, let me briefly explain the theory.
Cash flow can be categorized into three types:

  1. Cash flow from operating activities
  2. Cash flow from investing activities
  3. Cash flow from financing activities

For the sake of simplicity in this article, we will focus on cash flow from operating activities first. Different types of businesses have varying cash flow patterns.

For instance, in a restaurant business, you might receive cash and pay suppliers on credit. This allows your cash flow to remain quite healthy since you receive money before you pay. As long as you don't incur losses or over-expand, cash flow issues are usually not a concern for this type of business.

In a typical credit sales business, such as a regular company, when you issue an invoice, you don't receive payment immediately; you have to wait for the check to be collected. At the same time, you also have credit from your suppliers. The difference between cash inflow and outflow will depend on how long you have to pay your creditors and how quickly you can collect payments.

The slower you are in collecting payments while your expenses remain unchanged, the more cash you will need to sustain the business.

The last type involves offering extended credit to customers, such as certain government contracts or large projects. If your financial resources are limited and you have no bank loans, it can be quite challenging.

This perspective only considers buying and selling; it doesn't include aspects of investment, borrowing, or selling at a loss, such as in major e-commerce businesses in our country.

I once had the opportunity to speak with a very experienced businessman, and I still remember his teachings to this day. He taught me three important lessons:

  1. A business can survive losses, but it cannot survive without cash flow.
  2. Many profitable businesses have failed because they couldn't manage their cash flow.
  3. If you don't look at any numbers throughout the day, at least check the cash flow.

These are three lessons about cash flow that I hold dear in my life.

Cash flow is so crucial that it is often metaphorically referred to as the main artery of business.

So why is that? It's because...
If you don't have cash to pay your creditors on time, your credibility will drop significantly.
If you can't pay your employees, morale will surely plummet.
If you can't pay the bank, your credit will suffer, potentially leading to lawsuits.

Credibility, credit, and morale take a long time to build but can be destroyed in a very short time. This is why cash flow is so important.

As mentioned earlier, a company can sustain losses, but it cannot survive without cash.

I believe these are the five crucial points for managing cash flow that every business owner should consider:

  1. Monitor cash flow as frequently as possible: Ideally, you should check it every day.
  2. Understand cash inflows and outflows: You need to know where your cash is coming from and where it is going. This may seem basic, but many people ignore it until it becomes a problem.
  3. Understand the cost of money: Let me give you an exaggerated example. Suppose you have two sales options:
    - Option 1: Sell for 100 baht and receive payment today.
    - Option 2: Sell for 105 baht but receive payment in 10 years.
    Which option would you choose? Everyone would obviously choose the first option. This is the "cost of finance."
  4. Keep personal and business finances strictly separate: This is a significant issue. Mixing personal and business funds can lead to cash flow problems in the future.
  5. Always prepare a reserve of funds: Don't think you can find funds when you need them, as it may not be possible or could come at a high cost. Business owners should prepare in advance, such as consulting with banks to secure credit lines or choosing banks that offer both financial services and business networking opportunities.


I want to emphasize again that cash flow is the main artery; if it runs dry, it can be fatal.

Have you ever heard the phrase "Cash is King"? It actually comes from this saying:

"Revenue is vanity, profit is sanity, but cash is king."

Revenue is a source of pride, profit is a normal state of mind, but cash is the ultimate necessity.

SOURCE: www.krungsri.com