Cash Flow

Cash Flow is the movement of cash into and out of a business over time. A company can report accounting profit and still fail if cash is not available when obligations become due.

Why it matters

Cash flow determines whether a company can pay employees, suppliers, infrastructure bills, taxes, and debt. Timing matters as much as total revenue and expense.

Mental model

Treat the company as a reservoir: collections add cash, while payroll, vendors, infrastructure, and investments remove it. The balance and timing determine operating flexibility.

Practical considerations

• Separate revenue recognition from actual cash collection.
• Forecast timing under optimistic, expected, and adverse scenarios.
• Understand recurring commitments created by engineering and vendor decisions.
• Preserve enough liquidity for delays and unexpected costs.

Common mistakes

• Equating revenue with available cash.
• Ignoring annual contracts, payment terms, and collection delays.
• Committing to fixed costs based on temporary growth.