Operating Cash Flow 101

Cash flow is the term used to describe the movement of cash into and out of a business. A Statement of Cash Flow is a financial statement describing the movement of cash over a specified period of time.

I don't want to haggle over the ins and outs of a cash flow statement on this page. Statements of Cash Flow is more of a topic for investing in stocks or for discussing business management.

What I want to teach you is the importance of cash flow and how to protect your cash flow control.

This is Straight Up's Cash Flow 101.

• Cash is King because you can only use cash to pay your bills
• You should always do cash flow projections to predict your cash flow for a year out
• You must keep accurate records and bookkeeping to properly manage your cash flow
• You must balance your bank ledger each and every month

Operating cash flow is important to remain in business. Cash flow involves much more than just making good investments.

For example, you find a 20 acre tract on the outskirts of town. You can get it at a real bargain. You know some contractors who are drawing up plans to build a new Wal-Mart right next to the tract.

So you buy the property in hopes that a commercial developer will want to build a strip center on your property.

The problem is that each and every month you have a mortgage payment to make but no income coming in from the property. Pretty soon you cannot make your payments anymore so you lose the property.

Some other investor swipes it up just in time before Wal-Mart builds a huge Supercenter right next door.

The problem was a lack of operating cash flow. The investment was good, but you didn't have income to pay for it.

Yes, there are some investors who speculate in raw land and do very well. But you must have cash to pay for it. So you either have to have a ton of cash sitting around to play with or you must have other cash flowing properties who can pay for it.

Either way it takes cash!

So operating cash flow is important to remain viable. It's very hard to achieve sometimes, but you gotta have cash coming in.

Cash flow 101 on this site simply means having more cash coming in than you have going out.

Keep accurate records, balance your bank statement, and pay close attention to whats happening to your cash.

I recommend keeping 6 months worth of expenses in cash. This would include mortgage payments, taxes, insurance, and any utilities you pay. This can be difficult, but it's the best way to safeguard yourself.

It also protects you in case you have an unexpected repair.

The board game Cash Flow 101 is a great tool to teach financial literacy.

There are two stages to the game. In the first, "the rat race", the player aims to raise his or her character's passive income level to where it exceeds the character's expenses. The winner is determined in the second stage, "the fast track". To win, a player must get his or her character to buy their "dream" or accumulate an additional $50,000 in monthly cash flow.

In place of “score cards”, there are financial statements. The game requires the players to fill out their own financial statements so that they can see more clearly what is happening with their money. It generally shows how assets generate income and demonstrates that liabilities and 'doodads' are expenses.

Robert Kiyosaki actually has created three Cashflow games:

• The Original Cash Flow 101

• A follow-up game for more advanced players - Cashflow 202

• A children's version called Cashflow for Kids

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