Understanding the Basics of Business Cash Flow

March 24th 2016 at 3:19pm Published by sharpshooteradmin

Once you start running your own business, you will realize just how important cash flow management is for you. Running a business of your own, you should be aware of the role that cash plays in your business. Cash is responsible for a lot of things that transpire inside your business. To begin with, cash plays an imperative role in determining just how you feel about the way your business is run.

If your cash management is poor, you would never be able to achieve the objectives that you have associated with your business. To make sure you have cash available at all times, it is necessary that you understand cash flow management for a business.

What is Cash Flow?

If you aren’t aware of the definition yet, cash flow is the net amount of money that moves in and out of your business. The cash flow is a metric used for measuring money moving in and out of your business at any given time. Many business owners like tracking their cash flows on a periodic basis to see just how much money went in and out and where the cash balance stands at the end of the specified period.

A positive cash flow states that you have a cash balance with you, while a negative cash flow states that you are currently on bank credit and don’t have any cash on you.

How to Organize a Cash Flow Statement?

Creating a cash flow statement is no walk in the park, which is why you would require the services of a professional with you. The professional would study your cash flow and determine just what should be done about your cash balance.

The format for a cash flow statement is basically broken down into three parts:

Operating Cash Flows

Operating cash flows include balances from all the activities that you do on a regular basis. Cash inflows for operating cash flows could come in from:

  • Selling all the products or services that you sell to customers.

The cash outflows that come here consist of:

  • Inventory purchases for selling off
  • Employee payroll expenses
  • Advertising expenses
  • Other operating expenses

You would ideally want your operating cash flow to be positive and high, because this includes your main revenue stream.

Investing Cash Flow Activities

This typically deals with the inflow and outflow generated from selling assets that you possess. The typical cash outflows and inflows over here consist of:

  • Selling and buying of property
  • Selling and buying of buildings
  • Selling and buying of equipment
  • Selling and buying of company vans and vehicles
  • Selling and buying of other fixed assets

Financing Cash Flow Activities

The cash flow in this part measures your cash inflow and outflow for all financing options. This would include your small business funding and merchant cash advances and the repayment you make for them.