seems profitable viewed from afar.     The crucial detail a business owner must manage is called "cash flow." Cash flow is another term for the money coming into and going out of your business. Positive cash flow occurs when the money coming into your business exceeds the money flowing out, and negative cash flow is the opposite. In the day-to-day world of starting and operating your business, you will be at least as concerned about short-term cash flow as you will be about long-term profitability. After all, you dont want your creditors to sue you because you cant pay your bills even though your sales are increasing rapidly. One new business owner I know even wears a T-shirt that says: "Happiness is positive cash flow."         Your Cash Flow Forecast is different from your Profit and Loss Forecast because money comes into and flows out of your business at different times than your Profit and Loss Forecast shows. A formal Cash Flow Forecast is required by most potential backers, who want to know that you understand and can manage that time difference.     Example:Rita Singh plans to open a small tie-dye manufacturing business. Since several of her likely customers are chain stores, Rita knows that she will have to sell and ship their orders before the stores pay her. The stores often can take several months to pay their bills. Wisely, Rita carefully prepares a Cash Flow Forecast to make sure she can afford to sell on credit.     In your Cash Flow Forecast, youll refine any guesses youve made about how much money you need to start or expand your business. Youll develop an amount of money you are comfortable with-an amount you can explain to prospective investors. In other words, you need to be as accurate as you can be in this forecast.     The money you need to start or expand your business can be separated into two categories:     Capital investment. This is the cash you need to spend before you begin or expand your business.     Initial working capital. This consists of the cash reserves you need to keep your business afloat before you begin to show profits every month.     Commonly, cash flow from monthly sales is not enough to cover monthly expenses for the first few months after a new business opens. If your Cash Flow Forecast shows a negative picture for this period, you need to have extra money set aside for initial working capital. Your initial working capital keeps the doors open until cash flow from monthly business becomes positive. If your Cash Flow Forecast shows youll run a cash deficit for several months, dont be too concerned. Just be sure you have enough initial working capital to cover it. But if your Cash Flow Forecast shows a continuing cash deficit, or a deficit that rises over time, your business may have some fatal flaw and you should re-examine the whole idea before making any commitments.     Growth, too, can create problems. Many businesses that grow quickly suffer severe cash flow shortages because money from sales does not come in fast enough to cover the investment needed to expand. If you find yourself in this situation, you will need to reduce your growth rate or find extra sources of money. (See the cash flow discussion below, in of this chapter, for more on this.)     So, lets put a close-up lens on our camera and focus on cash forecasting. Here again, its necessary to get out your calculator or computer and play with some numbers.