Why Cash Flow Is QUEEN!
No disrespect to cash. We all know Cash is King. Cash is a liquid currency that makes it easy to buy and sell goods and services. Valuables are measured by cash. In each culture, there is some form of money used to trade in the land. Cash Flow, however, has become somewhat of a buzzword. When I discovered the difference between Cash and Cash Flow, I instantly shifted my focus to learn everything I could on the topic! Let’s explore why Cash Flow is Queen and how it serves as the bloodline of every income statement.
What is Cash Flow?
Cash Flow is the total amount of cash or equivalent cash one receives minus what is subtracted through payments to creditors. It gives a snapshot of the total amount of cash coming in and cash flowing out.
Capital Gains
Capital gains are often confused with Cash Flow. They are both byproducts of business and/or investment. To acknowledge capital gains, you should sell the asset. Likewise, you can have a capital loss on the off chance that you lose the sale of the asset. The key here is someone must also pay you more than what you paid for it. Capital gains are a one-time profit you make on an investment. In contrast, Cash Flow does just that. It is the simple flow of it all.
Cash flow isn't equivalent to profitability. A profitable business can still sometimes not be able to cover its bills. Essentially, because a business meets money-related commitments doesn't mean it's profitable. Profit is an accounting term, which truly just exists on paper. Estimating benefits offer a different perspective on business. It doesn't disclose much about how the business gets by every day.
Cash from Operating Activities
Operating activities include but are not limited to:
Receipts from sales of goods and services
Interest payments
Income tax payments
Payments made to suppliers of goods and services used in production
Salary and wage payments to employees
Rent payments
Any other type of operating expenses
Cash vs. Cash Flow
Cash flow is the money that flows in and out of your business per month. It might seem as if cash flow is the movement of money in only one direction, but it moves both ways. In it, the cash exists. The cash is the amount flowed in cash flow.
Cash comes in from customers who buy the company's products or services. If clients do not pay on time of purchase, a part of your cash flow comes from collections of accounts receivable.
Cash goes out of your business in the shape of payment for expenses such as rent or mortgage, monthly payments of loans, payment for taxes, payments to merchants/suppliers, and other accounts payable accounts.
How does the Cash Flow Quadrant fit into the mix?
The Cash Flow Quadrant has four sections. These sections are employees, self-employees, business owners, and investors. These quadrants are named E, S, B, and I, respectively. Each of these quadrants has its own benefits and drawbacks. None of them are created equal. Each section dictates how cash flow is earned, managed, taxed, etc.
Why are business and investments the only way to develop cash flow?
In the subject of accounting, cash flow is the tie between money that comes into your business and money that goes out. To generate strong cash flow, you have to drive revenue and decrease and/or fix costs. The term “generate cash flow,” is mostly used to refer to one’s efforts that can create an influx. Cash flow can only be developed through businesses and investments. This is because cash flow occurs when some cash is put into an opportunity to reap a direct benefit. Employees rarely, if at all, have an opportunity to invest in the company they work for, produce a benefit, and/or receive proceeds independent from their wages. Self-employed workers have more of an advantage than at-will employees because they either fully own or have purchased a license or orchestrated a contractual deal that permits them to benefit in ways that generate cash flow. Primarily, they are physically limited to the output produced and penalized through strong tax measures.
Why should you accept cash flow is Queen?
Cash flow investing is something most commonly understood in the Real Estate Buy and Hold realm. For instance, you purchase a six-unit property and lease every one of the units. Consistently, you receive rent payments, pay maintenance/turnover costs, and the mortgage. Generally, if you have maintained or added value, monitored the rates in the area, and/or purchased at or below value cost, you end up with a positive cash flow. Is it conceivable to have a negative cash flow? Totally. That is the reason for having a solid approach to analyzing your investment. So, why is cash flow exciting?
Financial Opportunity
Cash flow has many benefits, and one of them is that you don't have to obtain thousands of dollars in savings—yet! This is the thing the vast majority consider when talking about being monetarily free, wealthy, and never working again. Rather, you need to develop your month-to-month cash flow strategy to cover your everyday costs vs. working a job to generate it physically. When your life is not driven by meeting your monthly expenses, your time is opened up to do whatever brings you joy.
2. Carefree Retirement
One more preferred position of focusing on cash flow is that it wipes out the dreaded idea of running out of cash. There is a common concern that comes up when people say, "I'm stressed, and fear I will outlive my retirement account." By collecting resources that give a month-to-month cash flow, cash comes inconsistently until you choose to sell/depreciate the asset(s). Having additional sources of income, adds a layer of comfort.
3. Control
It isn't advisable to put your time and monetary resources somewhere you can't control – particularly your cash. With cash flow contributing, your success isn't directed by the daily changes in the market. You can't control the business sectors; however, you can control your investment deals/businesses. Click Here to grab the Time of the Essence Bundle today and begin creating better habits to achieve your goals faster and more effectively.