Yes, consider cash flow to be the money that flows into and out of a project or firm. When money comes in, it’s like the tide rising, and when money goes out, it’s like the tide lowering.
Assume you’re organizing a lemonade stand. You begin with $100 to purchase lemons, sugar, and glasses. You make $30 per day selling lemonade. But you also spend $10 per day on new lemons and other supplies to keep the stand running.
Example
So, for the first three days, your cash flow may look like this:
– Day 1:
– Cash in: $0 – Cash out: $10 – Total cash: $100 – $10 = $90
– Day 2:
– Cash in: $30 – Cash out: $10 – Total cash: $90 + $30 – $10 = $110
– Day 3:
– Cash in: $30 – Cash out: $10 – Total cash: $110 + $30 – $10 = $130
This graph depicts how your cash flow fluctuates from day to day. To keep your project functioning effectively, you must have more money coming in than going out!
