Question

Why is looking at cash flow an important step in a good financial plan

Answer 1

It’s a good step because you know where you are at in present time as well as looking ahead into the future financially.

Answer 2

Answer:

Step-by-step explanation:

Because cash is extremely flexible. It gives management a whole lot of options. Microsoft, for the longest time, didn't pay any dividends. They kept most of their money to develop more and better software given that the hardware was steadily getting better able to handle the operating system.

Management can better plan for contingencies if they have a good cash flow.

• They can more easily settle labor disputes.
• They can invest in more up to date capital expenditures
• They can pay dividends.
• They can hire more employees to take on needed tasks.

The net income takes care of all these possibilities. But the cash flow is the amount of money the business pays out over a period of time. They are more or less constant amounts. The cash flow shows what the company needs to pay out. Anything left over is used for the 4 possibilities I've listed.