Cash flow

 A level Business: All companies work on a positive cash flow Profit is great, but cash is king! All companies need positive cash flow to survive — it's the money flowing in that pays the bills, not just the profit on paper. #ALevelBusiness #CashFlow

A Level Business: Why All Companies Need Positive Cash Flow (Even If They’re Profitable)

In A-Level Business, we often talk about revenue, costs, and profit. But one of the most crucial — and sometimes overlooked — concepts is cash flow.

You may have heard the phrase “cash is king”, and in the world of business, it really is. A company might be profitable on paper, but if it doesn’t have enough actual money coming in to pay its bills, it can quickly run into trouble.

What Is Cash Flow?

Cash flow refers to the movement of money in and out of a business. It's not the same as profit. Think of it like your own bank account: you might be due a big payment from someone, but until that money hits your account, you can't spend it. Similarly, a business might have made a sale (and so shows a profit), but if the customer hasn’t paid yet, there’s no cash available.

Cash flow is often divided into three types:

• Operating cash flow – from normal business operations like selling products or services.

• Investing cash flow – from buying or selling assets (e.g., equipment, buildings).

• Financing cash flow – from loans, share issues, or paying dividends.

The Danger of Being Profitable but Cash Poor

A business can show a profit on its income statement but still run out of cash. How? Here are a few examples:

• Customers delay payments (called trade receivables or debtors).

• The business spends a lot on inventory or new equipment.

• Loan repayments or rent are due before cash comes in.

This leads to negative cash flow, which means more money is going out than coming in.

Imagine running a bakery. You’ve made a £1,000 profit this month — sounds great. But if you haven’t yet been paid by three of your customers, you’ve got no money to buy flour, pay wages, or keep the lights on. That’s a big problem.

Why Positive Cash Flow Matters

Here’s why every company needs positive cash flow:

1. To Pay Bills on Time – Suppliers, employees, rent, electricity — they all need paying.

2. To Avoid Debt – With enough cash, you don’t need to borrow just to stay afloat.

3. To Invest in Growth – Want to expand or launch a new product? You’ll need cash to do it.

4. To Survive Uncertainty – Economic downturns or late customer payments can hit hard. Cash provides a safety net.

Cash Flow Management

In A-Level Business, you’ll learn how companies manage their cash flow through:

• Cash flow forecasts – predicting future inflows and outflows to plan ahead.

• Credit control – chasing payments and limiting credit terms.

• Stock control – avoiding tying up cash in unsold goods.

• Negotiating better terms – delaying payments to suppliers while speeding up customer payments.

Final Thought

Profit might get the headlines, but cash flow keeps the lights on. A business can survive for a while without profit, but not without cash. That’s why every business, big or small, needs to keep a close eye on cash flow — and why it’s such a key concept in A-Level Business.