Cash Flow

How Do I Stay On Top Of My Cash Flow?

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What Is Cash Flow?


Cash flow is the virtual or real movement of money. In a narrow sense, cash flow is a currency payment from one bank to another. For funding purposes, cash flow describes payments in or out of a financial product, business or project.Cash flow is a variation of debt financing where the lender provides working capital for your business. The security for the loan is the expected cash flow that you (the borrowing company) generate. Cash flow is closely connected with the concepts of interest rate, value and liquidity.The amount you borrow depends on the value of the asset (security), estimated cash flow and the business’s investments such as stocks.In business financials, the total net cash flow of a company over a defined period is equal to the change in the cash balance during the same period. Cash flow is negative where cash balance decreases and positive if cash balance increases.

What Affects My Cash Flow?


    Cash flow includes:

  • Cash flow from operations – This includes cash flow from the business’s core activities such as sales paid in cash and incoming loan.
  • Cash flow from investments – This includes cash flow from long term investments such as purchasing a property or manufacturing warehouse. It is purchased capital that is added to an existing collection of assets.
  • Cash flow from financial activities – This refers to how a business is funded through receipt or payment of bank loans and investments from the owner.

What Is a Cash Flow Forecast?


  • This is the projected forecast of outflows and inflows during a specified period in the future. The cash flow forecast lists everything you’ll spend money on during the defined timeframe such as rent and salaries. It also includes predicted income.
  • Cash flow forecast is crucial to the success of your business. It gives you an idea of how much money you can realistically expect. This enables you to budget accordingly and plan for dips or peaks in business.
  • Think of it as a warning for shortfalls in cash that may affect payment to suppliers or staff payroll.

Why Is Cash Flow Important?


Just like the body needs food and water to live, so does a business needs cash flow to survive. An invoice is not physical cash. Until you have the funds, you have no cash. In the meantime, you need to pay your suppliers. Cash flow provides liquidity.

Other reasons why cash flow is important include:

  • Positive cash flow shows that your business is doing well.
  • Cash flow enables you to meet your tax liabilities.
  • Positive cash flow keeps you in control. You avoid making rash decisions that could hurt your business.
  • Maintaining good cash flow is crucial to business operations. Without cash, you can’t pay salaries, settle vendors or buy materials.

How to Calculate Cash Flow


Often, cash flows are changed into measurements that provide information on a company’s value and financial position to calculate a project’s value or rate of return.

Cash flow = Income - Expenditure

Cash inflow/income is generated from the sales of services or goods, borrowed funds or money earned through investments. It also includes income from outstanding invoices and your bank balance.

Cash outflows/ expenditure includes money spent buying equipment, payment to vendors, salaries, rent and maintenance payments.