Managing your cash flow: Everything you need to know

Cash flow is the amount of money that comes in and out of a business and can be positive or negative. Positive cash flow is when more money enters than leaves. Negative cash flow means that more money is leaving rather than coming in.

Effective cash flow management is critical to the success of your business. If you can accurately predict cash flow you will steer your business in the right direction.

By mastering cash flow strategies, you can get ahead of the competition. You’ll even be able to estimate cash flow through your understanding of the revenue cycles of customers, vendors, suppliers, and contractors. 

Every business has high and low seasons. Predicting future costs for employee overtime, replacement equipment, and other necessities goes a long way toward ensuring your company’s future cash flow.

cash flow

– Operating Cash Flow

  • Operating cash flow (OCF) is the cash earned through regular operating activities over a certain period. It should be used in tandem with net income, free cash flow (FCF), and other metrics to analyse a business’s performance and financial health.
  • OCF shows a company’s short-term financial health. Investors and potential business partners look for OCF on financial records to see if a business earns enough money to run its day-to-day operations.

– Investing Cash Flow

  • This is the area of a company’s cash flow statement showing how much money was spent (or earned) on investments during a given time. Investing activities include purchasing long-term assets (like infrastructure, factories, and machinery) and investments in capital assets (stocks and bonds).

– Financing Cash Flow

  • Financing cash flow is how money transfers between a business and its investors, owners, or lenders.
  • Cash flows from financing activities are transactions connected to the business raising money from debt or stocks. 

How To Track Your Cashflow

To effectively manage your cash flow, you need to monitor your business’s inflows and outflows. 

You can do this by:

  1. Keeping track of all your receipts for expenses (which can be difficult if there are multiple people making purchases).
  2. Keeping track of all of your sales income (making sure to account for any discounts given).
  3. Including everything in your cash flow Google Sheets or an Excel spreadsheet (including multiple checks to make sure everything is correct).

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