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In the simplest terms, cash flow is the cash going out and coming in to the business.  Cash flow is a revenue or expense stream that changes a cash account over a given period.  Cash inflows usually come from one of three activities – financing, operations or investing.  Cash outflows result from expenses or investments. This holds true for both business and personal finance.  How important is it to be aware of cash flow?  Bear in mind that more businesses fail for lack of cash flow than for lack of profit.

A business can generate an  accounting statement called the “statement of cash flows”, which shows the amount of cash generated and used by a company in a given period.  Although, cash flow can be used as an indication of a company’s financial strength, most businesses overlook this important tool!

It is important to understand that sales and costs and, therefore, profits do not necessarily coincide with their associated cash inflows and outflows.  This is because that  although  a sale is  secured and goods are delivered, the related payment may be deferred as a result of giving credit to the customer or simply because the customers are slow paying!  Meanwhile,  payments must be made to suppliers, employees and used to purchase  new equipment and so forth. What does this all mean? Well, the net result is that cash receipts often lag behind cash payments and although profits may be reported, the business can experience a short-term cash shortfall.  This is why  it is essential to forecast cash flows as well as project likely profits.

The good news is it is easy to produce a computer generated a cash flow statement and to do a projection of cash flows using Quick Books software.  Used effectively, a projection can help prevent major planning errors, anticipate problems, identify opportunities to improve cash flow or provide a basis for negotiating short-term funding from a bank.

Please Note : When preparing cash flow projections, be aware of the following risks:

• Overstating sales forecasts
• Underestimating costs
• Ignoring historic trends
• Making unduly-optimistic assumptions about the availability of credit

These problems can arise as the result of a lack of foresight or knowledge, or because of excessive optimism.  New business owners can achieve the desired results by consulting with a professional to understand cash flow projections.

In the United States there are more  200,000 small nonprofits.  It does sound like a large number, doesn’t it? Does the IRS think it is too many? Well, these organizations  could be  close to  losing their tax-exempt status if they haven’t filed a new form with the Internal Revenue Service.

Why haven’t they filed the form? Most likely they were not  aware of a deadline that only applies to groups that report $25,000 or less in income, excluding churches.  And those organizations may not find out until Jan. 1, 2011, when they’re notified they have to pay taxes on donations they thought were exempt.  Even worse, if they missed filing the form, it could be months before their nonprofit status is restored.

Congress required the form, called a 990-N, when it amended the tax code three years ago and groups with a fiscal year ending Dec. 31 had until Monday, May 17 to meet the deadline.  The form is due every year by the 15th day of the 5th month after the close of your tax year. For example, if your tax year ended on December 31, the e-Postcard is due May 15 of the following year. (May 15 was a Saturday and so the extension until May 17.)

If they do not file 990 N on time, the IRS will send a reminder notice but you will not be assessed a penalty for late filing.  However, there is some good news, an organization that fails to file required e-Postcards (or information returns – Forms 990 or 990-EZ) will not lose its tax-exempt status unless they fail to file for three consecutive years. The revocation of the organization’s tax-exempt status will not take place until the filing due date of the third year.

Learn more at http://www.irs.gov/charities/article/0,,id=169250,00.html.