Positive Cash Flow – What is it?

Positive cash flow is a term used to indicate the current financial condition of an individual or a business, pointing to earnings being higher than expenses, leaving the owner with some cash at hand.

It refers to the cash movement into and out of, a business, a household or a financial product. Cash in this case is used as a synonym for money or income available for spending, and cash flow means the money coming in.

Therefore, a positive cash flow points to there being money with the individual or business, and negative cash flow is the opposite, when the expenses are higher than earnings, leaving then with negative amounts or debt.

A negative cash flow is like falling into a well, and unless it is rectified, it means falling further down and increasingly difficult to surface. For this reason, a tight fist and rein on expenses is crucial to ensure that expenses never cross the earnings threshold.
A positive cash flow is a route to wealth since the surplus earnings are saved, and the accumulated amount can be used for a small capital investment. Building a capital base helps to consolidate wealth and raise the economic standard of the person in question. Positive cash flow is the route to wealth gain, since the aggregate spending remains below income and earnings, leaving a small amount as savings.

How to have a positive cash flow
A positive cash flow may not always be possible especially in the middle and lower income groups, where spending is anyway marginally above subsistence levels.

  •  Find ways of increasing earnings while keeping expenses constant- This may involve finding ways to earn more in the current job or supplementing income through others sources, like trading in stocks, forex, or through the property route. Property investment involves a two-fold benefit in the form of regular rental income and appreciation of investment in the long run.
  •  Find ways to cut expenses if earnings cannot be increased or supplemented- In the current age of consumerism, it is customary to find expenses running high, many of which are for frivolous non-essentials. Cutting down on these is not difficult but requires a conscious effort and discipline after re-evaluating the expense list. Efforts to stick to a budget after making one at the beginning of the month help tremendously. This does not mean living with the bare minimum or being frugal all the time or even stepping down economically. It only means cutting a bit of the extras.

Positive Cash flow and business
A business will have a positive cash flow if its long term income coming in, is more than the outflows or payments for purchase of goods and services. Irrespective of the cash intensity of the business which varies across industries, companies can run only if they maintain a positive cash flow in the long run. Companies with positive cash flows may not necessarily be making profits, but are perhaps able to meet their expenses or cash outflows.

A positive cash flow is more crucial for a small business with a small capital base. It ensures that the maximum benefit can be derived from trade discounts and special offers made to smaller businesses.

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