Calculate and analyze your business cash flow. Track cash inflows and outflows to understand your liquidity position and make informed financial decisions.
Investment income, asset sales, refunds, etc.
Rent, utilities, salaries, supplies, etc.
Direct costs to produce/purchase products
Principal and interest on business debt
Equipment, property, long-term asset purchases
Income, sales, payroll, and other taxes
Cash flow is the movement of money into and out of your business over a specific period. It's one of the most critical metrics for business health because it directly impacts your ability to pay bills, invest in growth, and survive economic downturns. Unlike profit, which can include non-cash items like depreciation and accounts receivable, cash flow shows the actual cash available to your business.
Positive cash flow means more money is coming in than going out, providing liquidity for operations and growth. Negative cash flow indicates you're spending more than you're receiving, which can lead to cash shortages even if your business is profitable on paper. Many profitable businesses fail due to poor cash flow management, making this one of the most important metrics to monitor regularly.
Money coming into your business from various sources. These are the lifeblood of your operations and determine your ability to cover expenses.
Money leaving your business to cover expenses and obligations. Managing these effectively is crucial for maintaining positive cash flow.
Cash generated from core business operations, excluding financing and investing activities. This is the most important cash flow metric as it shows whether your business model generates cash.
Formula (Direct Method):
Cash Inflows from Operations - Cash Outflows from Operations
Formula (Indirect Method):
Net Income + Non-Cash Expenses (Depreciation) + Changes in Working Capital
What It Shows:
Whether your business can generate sufficient cash from operations to maintain and grow without external financing
Cash available after accounting for capital expenditures needed to maintain or expand the asset base. This represents cash available for distribution to investors or debt repayment.
Formula:
Operating Cash Flow - Capital Expenditures
What It Shows:
True cash generation after maintaining business assets; used by investors to assess business value and dividend capacity
Total change in cash position over a period, including all sources and uses of cash. This is the simplest measure of whether your cash position improved or declined.
Formula:
Total Cash Inflows - Total Cash Outflows
What It Shows:
Overall change in cash balance; positive means cash increased, negative means cash decreased
Understanding the difference between cash flow and profit is crucial for business management. A business can be profitable but still run out of cash, or have negative profits while maintaining positive cash flow.
| Aspect | Cash Flow | Profit |
|---|---|---|
| Definition | Actual cash moving in and out of business | Revenue minus expenses (accrual basis) |
| Timing | When cash is actually received or paid | When revenue is earned or expense incurred |
| Accounts Receivable | Not counted until payment received | Counted when invoice is issued |
| Depreciation | Not included (non-cash expense) | Reduces profit (accounting expense) |
| Loan Principal | Reduces cash when paid | Not an expense (doesn't affect profit) |
| Equipment Purchase | Full amount reduces cash immediately | Depreciated over time |
| Importance | Determines ability to pay bills and survive | Measures business performance and efficiency |
Both metrics are important. Profit shows long-term viability and business model effectiveness, while cash flow shows short-term survival and liquidity. Monitor both regularly for complete financial picture.
Project cash inflows and outflows for the next 13 weeks (rolling forecast). Update weekly to identify potential shortfalls early and take corrective action. Include all expected receipts, payments, and seasonal variations.
Keep 3-6 months of operating expenses in cash reserves for emergencies and opportunities. This buffer protects against unexpected expenses, late customer payments, or economic downturns. Build reserves during strong cash flow periods.
Track days sales outstanding (DSO), days payable outstanding (DPO), and cash conversion cycle. These metrics show how efficiently you're managing working capital. Lower DSO and higher DPO improve cash flow.
Set up a business line of credit before you need it. Banks are more willing to lend when you don't desperately need money. Use it as a safety net for temporary cash flow gaps, not for long-term financing.
Maintain separate bank accounts and credit cards for business. This simplifies cash flow tracking, improves financial visibility, and protects personal assets. Pay yourself a regular salary rather than taking irregular draws.
Monthly Inflows: $80K sales revenue, $5K from selling old fixtures
Monthly Outflows: $35K inventory, $15K rent and utilities, $20K payroll, $5K loan payment, $3K other expenses
Net Cash Flow: $85K - $78K = $7K positive
Healthy positive cash flow allows for inventory expansion and emergency reserves
Monthly Inflows: $50K from collected invoices (60-day payment terms)
Monthly Outflows: $35K payroll, $5K office rent, $3K software/tools, $2K marketing, $4K other
Net Cash Flow: $50K - $49K = $1K positive
Tight cash flow due to payment delays; should negotiate shorter terms or require deposits
Monthly Inflows: $200K sales, $50K equipment financing
Monthly Outflows: $80K materials, $60K payroll, $20K rent, $40K new equipment, $15K loan payments, $10K other
Net Cash Flow: $250K - $225K = $25K positive
Large equipment purchase offset by financing; strong operating cash flow supports growth
Peak Month Inflows: $150K sales revenue
Peak Month Outflows: $60K inventory, $25K temporary staff, $15K rent, $10K marketing, $8K other
Net Cash Flow: $150K - $118K = $32K positive
Must save peak season cash to cover off-season expenses when revenue drops to $30K/month
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