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

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GinnyAnswer

Final answer:

Cash flow analysis is essential in financial planning to assess liquidity, cover expenses, and make strategic decisions.


Explanation:

Cash flow is a vital component of a good financial plan as it provides insights into how much money is coming in and going out of an organization. Analyzing cash flow helps in determining if there is enough cash to cover expenses, make investments, and support growth.

By looking at cash flow statements, businesses can assess their liquidity and ensure they have sufficient cash reserves to meet short-term obligations without relying solely on external financing.

Understanding cash flow also aids in making strategic decisions, such as planning for expansions, managing day-to-day operations efficiently, and predicting potential financial challenges.


Learn more about Importance of Cash Flow in Financial Planning here:

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