Is it important to monitor a cash budget only in times of a liquidity crisis?

Monitoring a Cash Budget

Here is an excerpt from an article that I wrote for my business newsletter several years ago:

Many entrepreneurs struggle to understand the difference between cash flow and profits. Although a business needs to have both to survive, cash flow is the more critical of the two. Cash flow simply refers to the flow of cash into and out of a business over a period of time. It is what you need to have to keep your doors open while you’re busy trying to make a profit. Without cash, a business cannot pay its suppliers, meet payroll or operate effectively. Eventually the cash flow stops. If that happens, you’re out of business. This is why managing the inflows and outflows of cash should be a top priority for every business owner. To get a handle on cash, know when, where and how your cash flow occurs; plan ahead for seasonal fluctuations and unexpected emergencies (i.e. establish a contingency fund) and keep positive relationships with suppliers, bankers and business partners.

The bottom line is you should be monitoring your cash budget at all times, not just when a liquidity crisis occurs. By monitoring your cash, you can more accurately predict certain trends and possibly eliminate a liquidity crisis before it happens.