Profit looks good on paper, but cash flow is what keeps the lights on. Here’s how to master it.
In 2019, India’s home-grown hospitality start-up OYO Rooms was making headlines for its rapid expansion. Backed by global investors and operating in multiple countries, OYO was adding thousands of hotels to its network. On paper, the company looked unstoppable, with revenues climbing and its brand gaining recognition. But behind the scenes, OYO was grappling with one of the most basic yet critical challenges of business “cash flow”.
The company was spending huge amounts to acquire new hotels, give discounts to customers, and market aggressively. At the same time, the payments from hotel partners were not always coming in quickly. As a result, cash was flowing out faster than it was coming in. OYO had high valuations and impressive growth, but without steady cash to cover its expenses, it struggled. The lesson here is that growth and profit projections mean little if a business cannot balance its inflows and outflows of money.
So what exactly is cash flow? In simple terms, it is the movement of money into and out of a business. Income from sales, loans, or investments is the inflow, while expenses such as salaries, rent, supplier payments, and utilities are the outflow. If more money is flowing in than out, the business is healthy.
If the reverse happens, even temporarily, the business can face serious problems. Unlike profit, which is often just a number on a financial statement, cash flow shows whether a business actually has money in hand to pay its bills and continue running day to day.
Why is this so important? Because businesses run on liquidity. From a market economics perspective, cash flow is tied to two important concepts: liquidity and sustainability. Liquidity refers to how easily assets can be converted to cash. Sustainability, on the other hand, refers to the ability to generate steady and predictable cash flows over time. A healthy business is one that not only makes profits but also manages the timing of money efficiently to ensure survival during tough cycles.
Cash flow also plays a major role in economic growth. When businesses have positive cash flow, they spend more on salaries, expansion, and investments, creating a ripple effect in the economy. But when cash flow tightens like during demonetization in 2016 or the pandemic in 2020 businesses cut costs, delay payments, and reduce hiring, leading to a slowdown. Economists track corporate cash flows as an indicator of broader economic health because it reflects whether firms are able to operate and grow.
For business owners, managing cash flow is about striking the right balance. This starts with forecasting when money will come in and when it will go out. By preparing for lean months and peak seasons, a business can avoid surprises. Expense control is equally important. Extravagant spending during growth phases, as seen with OYO and even companies like Paytm, can quickly drain reserves if revenues do not keep pace. Businesses must also focus on receivables, ensuring that customers pay on time and that money doesn’t remain locked up.
Another smart strategy is to build a cash buffer, an emergency fund that can cover expenses for at least a few months if revenues slow down. Businesses can start building better cash flow by focusing on a few simple yet disciplined practices from day one. The first step is to create a realistic cash flow forecast, estimating how
much money will come in from sales and how much will go out for expenses over the next few months. This helps identify periods of shortage in advance. Next, businesses should prioritize quick invoicing and timely collection of payments to avoid money being stuck with customer. In short, starting lean, collecting fast, spending wisely, and keeping reserves are the keys to better cash flow management.
Ultimately, cash flow management is not just about survival but about seizing opportunities. A business with strong cash reserves can buy raw materials in bulk at lower prices, expand operations, or invest in marketing when competitors are struggling. It provides both stability and flexibility. That is why banks and investors often look at cash flow statements more closely than profit statements they want to know whether the business can sustain itself in real-world conditions.
The OYO example serves as a reminder that rapid growth and high valuations mean little without disciplined cash flow management. For businesses of every size whether a corner shop in Nagaland or a multinational company the principle remains the same. Profit may be a destination, but cash flow is the road that gets you there. Without managing it wisely, the journey can come to a sudden halt.
Entrepreneur School of
Business, Dimapur.
Monday, November 17, 2025