Why is cash flow planning important for a business?

The importance of Cash flow planning is linked to liquidity of a business. In any business, there is a need for cash in running day-to-day operations. Some examples include the purchase of office stationary or fuel. Cash flow is simply Cash Receipts minus Cash Disbursements. That means Cash In versus Cash Out. These 'cash needs' of the firm would not be met should a business have its monies tied up in other areas. Examples include: * Credit sales - Having sold goods for n days of credit (ie company to be paid in n days). Credit sales is ok but too much would have effects on the business especially if it is not managing its cash flow. * Assets - Purchases of assets like buildings and machinery must be checked against the cash flow management capacity of a firm given that they would become cash flow burdens to the firm after a purchase. To sum up, liquidity of a business is determined by its cashflow. The cash flow of a business determines its capacity to make certain business decisions. Hence, its importance to a business and business planning.