In the most literal sense, cash flow means how many dollars are coming in—referred to as cash inflow—and how many dollars are going out—referred to as cash outflow—over a given period of time. Maintaining a positive cash flow is important for individuals and businesses alike. For an individual, cash inflow is income and cash outflow includes expenses like insurance premiums, mortgage payments, or monthly bills. For a business, cash inflow includes revenue collected from customers or made on interest and cash outflow includes payments on loans, wages paid to employees, purchases of inventory or equipment, and so forth.
While cash is the money that you have to spend, cash flow is different because it takes into account both what is coming in as well as what is going out. Understanding what drives your cash flow, whether on a personal level or for your business, is vital because it tells you whether you are living within your means or if you are borrowing money each month because you are spending more than you are making. Whether managing business or personal finances, maintaining a cash inflow is essential to financial success.
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