Friday, March 18, 2011

Cash Flow is Necessary but not Sufficient

Many a times Cash Flow is so comforting that entrepreneurs forget about Profit. Its your money that counts at the end of the day. Cash Flow is important and critical but not enough. Its not your money. It is money in the system. May be belongs to banks, creditors or private lenders.

Unless U have profit in the books and cash flow supporting the same, u r in for trouble (Big or small depends). At individual level we have seen the crisis in the US in  2008. Same can happen or is happening with many entrepreneurs who consider present cash flow is their own ownership.  

It is also not necessary that all entrepreneurs are finance savvy (even management savvy) to understand implications of these tricky situations. Earlier it is the better it is.


  1. In general your contention is very correct. But please note that today all investors and bankers are looking at cash flow first and then profit. TO create value to the shareholders cash flow will help even if the company is incurring losses. For example take the case of Though the company has been incurring losses, has given more than 29 times return to the PE investors.

  2. Yes but enterprise have to focus on Profit. Start up valuation works differently since its in d initial stage companies have been incurring cost on market creation and branding. But aim is to become profitable. This is especially critical post start up stage.