The Ultimate Cash Flow Guide

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Cash Flow Basics

What Is Cash Flow?

What is free cash flow?

Free cash flow refers to your company’s operating cash flow minus its capital expenditures. This tells investors and lenders how much cash you have after accounting for maintenance or expansion of your company’s assets.

Is cash flow the same as profit?

No. Cash flow measures your company’s ability to pay your current liabilities through the calculation of inflows and outflows of cash and cash equivalents. Profit measures your company’s financial gain as a whole.

What does ‘cash is king’ mean?

The expression ‘cash is king’ means that cash flow is incredibly important to the health and success of your business. Positive cash flow enables you to pay your current liabilities and invest in your company’s growth.

What is cash flow from operations?

Cash flow from operations is the amount of cash that flows into your business during a specific time period from your regular, ongoing revenue-generating activities, like sales.

Where can I learn more about how cash flow works?

Keep reading to learn more about how cash flow works, how to calculate cash flow, how to make a business cash flow statement, and more.

Calculating Cash Flow

What are cash flow activities?

Your cash flow might come from different types of activities: operations, investing, or financing. Each of these cash flow activities is a line item on your cash flow statement. It’s important to understand how each type of cash flow activity works, as lenders and investors consider each category while they’re making decisions about your business. For example, a negative cash flow from operating activities may mean you’re having difficulty collecting payments from clients, while negative cash flow from investing activities could mean you’ve made smart investments in capital assets recently.

What is Cash Flow from Financing Activities?

Cash flow from financing activities refers to the cash generated or spent in all of the external activities that allow your company to raise financing. This includes the issuance of new debt or stock, debt financing, dividends payments, redemption of bonds, and repurchasing existing stock from your shareholders.

What is Cash Flow from Operating Activities?

Cash flow from operating activities refers to all of the cash your company brings in from regular, ongoing revenue-generating activities.

What is Cash Flow from Investing Activities?

Cash flow from investing activities refers to cash gained or lost on purchases and sales of investments in financial markets, as well as of your own capital assets.

What are cash flow ratios?

Your cash flow ratio tells you whether you have enough cash flow to cover your current liabilities. Lenders or investors might use your operating cash flow ratio to measure your company’s liquidity and in order to calculate it, they use this formula:

Operating Cash Flow Ratio = Cash Flow from Operations / Current Liabilities

Cash flow vs earnings: What’s the difference?

Your cash flow and earnings are accounted for separately because according to Generally Accepted Accounting Principles (GAAP), net income is recorded on an accrual basis; when an investment increases in value, for example. Unless you cash out that investment, you do not actually have the cash in hand and cannot use it in your business activities.

Cash flow vs income: What’s the difference?

Cash flow is different from income in the same way it differs from earnings. Cash flow measures your inflow and outflow of cash, whereas income measures a revenue-generating activity like a sale or an invoice sent, whether you’ve been paid for it yet or not.

Cash flow vs net income: What’s the difference?

Are cash flow and net income the same? No. Your net income includes non-cash items amortization and accounts receivable, while cash flow measures the actual dollar amount of cash going in and out of your business.

Cash flow vs net worth: What’s the difference?

Cash flow determines your ability to pay your current liabilities, while net worth is the calculation of all of your assets and liabilities. If you have more cash coming into your business than going out but your total assets aren’t enough to cover all of your liabilities, you are not operating a profitable business.

Cash flow vs profit: What’s the difference?

Cash flow differs from profit in that cash flow measures money flowing in and out of your business, while profit measures your financial gain on a particular transaction, or over a period of time.

Cash flow vs revenue: What’s the difference?

Cash flow vs revenue is an important distinction and can be tricky for small businesses to differentiate. Revenue is all of the sales, investment income, royalties and other income-positive activities from which your expenses are subtracted to arrive at your net income. Because many types of revenue are non-cash, it’s not an accurate way to measure the actual cash coming into your company. That’s what cash flow does.

Cash flow vs working capital: What’s the difference?

Working capital is the sum equal to your current assets minus your current liabilities. In addition to cash flow, investors and lenders might use your working capital to gauge your company’s short-term financial health.

What do I need to know about how to calculate cash flow?

There are several different ways to calculate cash flow but at its core, your cash flow calculation determines the difference between your company’s cash inflows and outflows during a specific period of time.

What is the cash flow formula?

Here’s how net cash flow is calculated:

Cash inflows – cash outflows = positive or negative cash flow

Your investors or lenders might also ask to see your free cash flow. That cash formula is:

Operating cash flow – capital expenditures = free cash flow

What are the cash flow calculation methods?

There are other cash flow calculation methods an investor or lender might ask you to use. In particular, they will probably want to see a cash flow statement with cash flow from operating activities, financing activities and investment activities as separate line items. But they may also want to see your cash flow calculated by either the indirect cash flow method or the direct cash flow method.

What is the indirect cash flow method?

The indirect cash flow method of calculating your cash flow uses GAAP-approved accrual accounting-based information and is typically simpler and quicker to do. You begin with net income value and add or subtract your assets and liabilities to arrive at indirect cash flow.

Net income + assets – liabilities = Indirect cash flow

What is the direct cash flow method?

The direct cash flow method of calculating cash flow is also known as the income statement method. It’s similar to the indirect cash flow calculation, except in this method, you break out your cash flow from operations figure and account for cash receipts and payments for the period at hand. This makes the direct cash flow method more time consuming and difficult to calculate.

Which cash flow calculation method is better?

Because the indirect cash flow calculation method uses information that already exists on your balance sheet and in other widely used reports, it’s easier to do and therefore is used by most people.

Can I calculate cash flow in Excel?

Absolutely! Many small businesses use Excel for bookkeeping. Microsoft Office even offers a handy ‘My Cashflow’ template for Excel 2016. Once it’s time to grow and scale your business, accounting software can automate much of the work of manual bookkeeping and assist with important administrative functions like payroll. See our Cash Flow Management Tools & Apps resource for more.

Positive and Negative Cash Flow

Can cash flow be negative?

Yes. When your cash outflows for a specific period are higher than your inflows, or money coming in, you’re experiencing negative cash flow. This doesn’t necessarily mean that your business is operating at a loss, but rather that your expenditures outweigh your income for that period.

What is the cash flow break-even point?

Your cash flow break-even point occurs when your expenditures and income for a specific period are equal.

How can a negative cash flow affect a business?

Many businesses experience short term negative cash flow; you’re not alone, and it is fixable. However, longer term negative cash flow can have serious business implications. The inability to pay suppliers or employees on time can damage your most important relationships. Additionally, lenders or investors who see negative cash flow over time may conclude that your operations do not provide enough income to support the business.

Can I borrow funds with a negative cash flow?

In many cases, you can borrow funds and even grow your business with negative cash flow. At FundThrough, we understand the bigger picture and take all of your operational, investment and financing activities into account. Our invoice funding service allows you to borrow funds to cover your payroll, buy inventory, purchase equipment, advertise, and expand your operations, even while you await payment from your customers.

Is positive cash flow the same as growth?

No. There are different types of cash flow: operational, financing and investing. You may be experiencing positive cash flow growth in one area but negative cash flow in another. For example, anticipating a customer paying late you might sell a piece of equipment to increase the month’s investing cash flow in order to cover negative operating cash flow. Even though you’re now able to cover your immediate expenses via positive cash flow, selling off company assets isn’t a sustainable model for growth.

Is positive cash flow the same as profit?

No. Just as negative cash flow doesn’t necessarily indicate losses, positive cash flow isn’t an indicator of profit. Because there are different types of cash flow activities (operations, financing and investing), it’s important to understand what it actually means for the health of your business. Your cash flow statement will provide better context for the effect of positive cash flow on your business.

Can I maintain positive cash flow with debt?

Absolutely. In fact, taking on debt with a term loan is a common way of generating or maintaining positive cash flow over a period. Alternative short-term financing solutions like FundThrough’s invoice financing can help you to manage cash flow and grow your business even while you await customer payments, without incurring additional debt.

What should I do when cash flow is negative?

It’s important to get back to a state of equal or positive cash flow as soon as possible. Not only do you need to take care of immediate expenses like payroll, equipment and supplies, but negative cash flow over time can be an indicator to potential investors and funders that your business isn’t thriving.

Where can I learn how to create a positive cash flow?

See our helpful resource on Improving Your Cash Flow for more.

Cash Flow Management

Cash Flow Management Basics

What is cash flow management?

Cash flow management is the critical practice of making sure that you always have enough free cash flow to pay your current liabilities. Good cash flow management enables you to make payroll and pay your suppliers on time, purchase capital assets, repurchase stock from shareholders, and otherwise invest in the growth of your business.

What is cash flow analysis?

Cash flow analysis is the financial record of your company’s cash inflows and outflows over a specific period of time. Your cash flow analysis is an important internal process to help you understand the health of your business, and it might also be requested by potential investors as part of their evaluation. Strong businesses make cash flow analysis a regular habit.

What is a cash flow budget?

A cash flow budget estimates your cash receipts and expenditures for a specific period of time in the near future. Preparing a cash flow budget, or cash flow forecasting, helps you identify negative cash flow situations in your near future so you can proactively use cash flow solutions to prevent it.

Why do people say cash flow is the lifeblood of a business?

People say that cash flow is the lifeblood of the business, or that “cash is king,” because cash is the common thread running through nearly every activity and resource at a business. You need free cash flow to run and grow your business through the purchase of inventory, capital assets and investments, and the acquisition of talent. Without free cash flow you cannot meet obligations to suppliers, pay your employees, or expand operations. A shortage of cash isn’t the end of the world; businesses can still meet many of their obligations while operating in a period of negative cash flow.

Who manages a business’s cash flow?

In sole proprietorships and small start ups, as the owner, you will almost certainly need to manage your business’s cash flow with the help of cash flow forecasting tools and software. Once a finance team is in place, they will do the work of preparing cash flow statements, which you and/or the executive team should review regularly as part of an ongoing cash flow management strategy. Some businesses hire a part-time controller to help manage cash and payments.

Can cash flow management affect our financial performance?

Absolutely. Regular cash flow analysis and management are critical to your company’s financial performance, growth, and even reputation. The inability to meet your financial obligations can cripple your business in a number of ways; from preventing investment and growth, to hurting your employees, to causing your suppliers to stop doing business with you.

How does stable cash flow help with growth?

Stable cash flow is key to your business’s growth and ability to plan ahead. Cash flow can help with growth by attracting investment, funding new equipment and capital asset purchases, increasing payroll to help you attract and retain talent, covering an expanded inventory, and more. A stable cash flow lets you respond to problems quickly and with ready, available capital.

As an individual, just having the reassurance of a stable and predictable cash flow can present serious benefits to your ability to think strategically and plan ahead. A cash flow problem is typically a short-term crisis, which can distract you from thinking strategically and taking calculated risks to grow your business.

How does your cash flow affect your customers?

You might be surprised at the number of ways your cash flow can affect your customers. With positive cash flow you can scale to meet demand. You can ship sooner. You’re more able to extend credit to your customers. You can honor payment terms, or even look the other way if a payment is a bit late.

Conversely, negative cash flow might mean losing key accounts, the inability to fulfill a large order, or having a supplier cancel a customer’s order because you are behind on payments. Having too little cash could mean you’re understaffed and unable to provide adequate customer service.

How does your cash flow affect your suppliers?

The most direct way your cash flow affects your suppliers is that it dictates your ability to pay outstanding invoices. Just like you, your suppliers (especially those in small businesses) need positive cash flow to meet their financial obligations and grow their business. Without cash you’re unable to meet those obligations, unable to re-order, and unable to give them a chance at stable cash flow themselves. Your relationship could suffer if your cash flow impedes your invoice payments.

On the other hand, having cash available might mean you can buy supplies in bulk at a discount. You can pay invoices early for a discount. You can place larger orders yourself and help your suppliers grow. You could just put a smile on their face, too!

How do late payments affect cash flow?

Any business has inflows and outflows – when outflows outpace inflows it creates a cash gap. While waiting on invoice payments you don’t have that cash available to fund activities, meaning you’re short for your own obligations. It’s possible to create a bit of a ripple effect throughout the supply chain if one payor pays late. Late payments are one of the top reasons small businesses operate with a negative cash flow.

How do payment terms affect cash flow?

Payment terms tell your customers how long they have to pay your invoice. You might require that all invoices are “Due On Receipt,” or you could extend a period of credit to your clients with Net 30, Net 60, Net 90 or even longer payment terms. However, you won’t have that free cash flow to buy inventory, pay your employees and suppliers, or invest in growing your business unless you solve that negative cash flow with a tool like invoice funding.

What’s the difference between managing cash flow as a small business and as a large corporation?

Large corporations are more likely to have reserves and greater liquidity, enabling them to withstand longer periods of negative cash flow from operations. Small businesses, on the other hand, rely on free cash flow across operations, investments and financing in order to not only grow but survive.

What causes a cash flow gap?

A cash flow gap is caused by more money leaving your business than you have coming in over a specific period of time; inflows and outflows. Consider a case when you have $8,000 in outstanding invoices due for payment on the 15th, but you need to pay your suppliers $5,000 by the 10th: even with more money in receivables than in payables, you simply won’t have the cash to meet your obligation on the 10th. You run a high likelihood of facing a negative cash flow situation where you do not have the cash to pay your liabilities.

How do I manage a cash flow crisis?

Managing a cash flow crisis requires an immediate injection of cash, to allow you to resolve your current liabilities and meet all of your financial commitments. Selling capital assets or investments creates liquidity, but these activities can negatively impact your long term ability to generate revenue. That’s why more entrepreneurs and founders are turning to invoice funding, to create free cash flow out of outstanding invoices.

What are the best practices in cash flow management and reporting?

The top cash flow best practices include invoicing customers immediately following orders, using short payment terms, incentivizing early payment, following up on outstanding invoices, and paying your own bills on time. Automating your invoicing and processing is a great idea, so you can stay organized and improve your cash flow easily and often.

How do small business owners manage cash flow?

Small business owners manage cash flow on an ongoing basis by forecasting cash flow and making sure they’re collecting enough payments from revenue generating activities to cover their expenses. Despite their best efforts and intentions, this simply isn’t always possible. When cash flow is negative in the short term, solutions like cost cutting and invoice funding can help. Over the longer term, invoice funding can ensure a steady stream of operational cash flow, freeing up funds for investment, inventory and assets, and other revenue generators.

What are cash flow management strategies?

Cash flow management strategies are the steps you take to forecast cash flow, monitor cash flow on a regular basis, and solve for any issues that arise.

Why should we have cash flow management policies and procedures in place?

You should have cash flow management policies and procedures in place to take the guesswork out of solving negative cash flow. Having a prescribed set of tools you can use when negative cash flow appears in your forecast allows you to quickly resolve the issue and get back to doing what you do best: running your business.

What are some cash flow management strategies for small business?

Cash flow forecasting, invoicing immediately and using short payment terms, monitoring expenditures, and invoice factoring are all effective cash flow management strategies for small businesses.

What are the best cash flow management models?

The best cash flow management model is the one you’re actively involved in. Even if you have an accountant or bookkeeper to manage your financial records, make sure you are regularly seeing a cash flow forecast so you can anticipate potential cash flow issues and put your management strategies to work.

What are the best cash flow processes?

The best cash flow processes are: a) cash flow forecasting, to keep you one step ahead of negative cash flow issues; b) a cash flow management strategy with pre-approved policies and procedures, to empower you to prevent or resolve negative cash flow quickly; and c) cash flow solutions like invoice factoring, to give your business an immediate injection of cash for payroll, supplier invoices, and growth activities.

How are effective costing, cash flow management and budgetary control connected?

Effective costing is critical to the financial health of your business, your cash flow, and your ability to turn a profit. Budgetary control is necessary for keeping your expenses in check. Your cash flow forecast tells you whether the revenue you’re generating from your sales and other activities is sufficient to cover your expenses in any given period of time. If you are consistently experiencing negative cash flow or failing to turn a profit, your costing and expenses are two areas you’ll need to investigate.

How can you pay taxes and still maintain a steady cash flow?

Speak with your accountant about your tax strategy to come up with ways you can remove your tax withholdings and obligations from your free cash flow. This prevents you from mistaking tax withholdings from cash flow. If you need an immediate source of funds to make a tax payment and are waiting on payment from clients, you can use invoice funding to cover the gap in your cash flow.

Where can I learn how to manage cash flow day to day?

Work your way through our Ultimate Cash Flow Guide, practicing the cash flow forecasting and management techniques you learn along the way. If you find yourself craving an in-depth, instructor-led course, try Running a Profitable Business: Understanding Cash Flow. It’s led by Jim Stice, Distinguished Teaching Professor of Accounting in the School of Accountancy at BYU, and Earl Kay Stice, PricewaterhouseCoopers Professor of Accounting at the Marriott School of Management.

Can you manage cash flow in Excel?

Yes. If you input all of your current invoices and receipts for a specific period into an Excel spreadsheet, you can manually forecast your cash flow. Use the following formula, and see Calculating Cash Flow for more.

Operating Cash Flow Ratio = Cash Flow from Operations / Current Liabilities

Where can I learn how to automate cash flow?

Automating your cash flow forecasting and management can free up time for you to look into your cash flow more often, helping you to make smarter decisions about your business. You can automate other aspects of your cash flow, as well; for example, enabling direct deposit and making bill payments online can help you move cash around faster. You can learn how to automate cash flow in different ways throughout our Ultimate Cash Flow Guide.

Where can I learn how to systematize cash flow management?

Managing cash flow on a PC is possible using Excel. Managing cash flow on a Mac gives you the option of using Numbers, and with either a PC or a Mac, you can use Google Sheets or a similar cloud-based spreadsheet software to input your sales and expenses, to calculate cash flow. You can further automate your bookkeeping and produce meaningful financial records using software like QuickBooks or Simply Accounting. QuickBooks offers a tutorial on how to prepare a cash flow statement here.

What are the steps to better cash flow management?

Practice cash flow forecasting regularly.
Develop and implement a cash flow management strategy.
Create cash flow policies and procedures to guide your solutions to different types of cash flow issues and save time when you need it most.
Use cash flow management solutions like invoice funding to ensure that you always have steady positive cash flow to pay your bills, attract new investment, and grow your business.

Tips for Improving Your Cash Flow

What are the most common cash flow problems?

The top business cash flow problems can dramatically impact your ability to grow, and they’re more common than you may think. Negative cash flow happens when a business is putting more cash out than it is taking in, often due to out of sync credit terms. When a business extends longer terms to its customers than it receives from its own suppliers, a cash gap appears during the difference in those payment terms. Other common cash flow problems include an inability to pay immediate liabilities, inability to move inventory, short-sighted decision-making and an inability to grow the business.

Where can cash flow problems cause difficulties?

Cash flow problems cause difficulties in every facet of your business, from affecting payroll to causing missed supplier payments to giving investors cause to doubt your business planning.

Why do small businesses have cash flow problems?

Small businesses often have cash flow problems because they haven’t yet been able to put money aside for reserves. Growing your company requires that you constantly invest funds back into the business. Small businesses might also have more stringent payment terms with suppliers than they are able to extend their own customers.

What are the top causes of cash flow problems?

Cash flow problems occur when your company’s cash output is greater than your inputs. Top causes of cash flow problems include late or slow invoice payments, necessary capital expenses and investment, a lack of forecasting and planning, carrying excess inventory, disorganized bookkeeping and more.

Where can I learn how to diagnose business cash flow issues?

You can learn how to begin forecasting your cash flow here. Making cash flow forecasting a regular and integral part of your business planning helps you foresee and diagnose cash flow issues so you can take a proactive approach to solving them.

How does a positive cash flow improve a business?

Positive cash flow improves your business by not only enabling you to meet your current commitments, but also by freeing up funds for growth-positive activities like investments in talent, equipment and inventory.

How can cash flow be improved?

Learning how to improve cash flow may be easier than you think. Once you’ve incorporated cash flow forecasting into your routine, you’ll be able to see your cash flow needs and any potential shortcomings in advance.

What are cash flow strategies?

Cash flow strategies help you manage your cash flow, to ensure you’re always able to pay your bills and maintain the growth of your business. Once you recognize a potential shortfall, cash flow strategies like asking for a deposit, requesting longer payment terms from your suppliers, or invoice funding can help prevent negative cash flow.

How can cash flow problems be overcome?

The key to overcoming cash flow problems is prevention. Cash flow forecasting helps you identify potential shortfalls and understand their causes, so you can proactively find solutions.

How can the worst cash flow problems be solved?

Typically, the worst cash flow problems are solved with an immediate injection of cash into your business. A cash flow solution like invoice factoring can get you through a negative cash flow situation without having to sell off capital assets, miss payroll or jeopardize your valuable vendor relationships.

How can you help your customers’ cash flow?

Depending on your company type and the unique needs of your business, you may be able to help your customers manage their cash flow by offering more flexible payment terms. However, your top priority must always be keeping your own cash flow positive, so you can grow your business.

How can you help your suppliers’ cash flow?

Your suppliers, especially if they are smaller businesses, may experience cash flow issues of their own. You can help their cash flow management by paying your invoices promptly, which of course requires that you have your own cash flow management under control.

Where can I learn how to fix a negative cash flow?

Keep reading our Ultimate Cash Flow Guide to learn more about cash flow management, and how to fix a negative cash flow.

Cash Flow Management Tools and Applications

Are there short term and long term cash flow solutions?

Yes. Long term cash flow solutions require that you identify the causes of your negative cash flow and correct those issues, but that doesn’t solve your immediate need. Be careful to avoid short term solutions that impose payday loan-style fees on small businesses for one-use loans. An invoice factoring solution designed specifically for businesses like yours smooths over the gaps in your cash flow with 24-hour invoice funding, low fees, and repayment terms that allow you to grow while solving your short term negative cash flow.

Why do we need cash flow forecasting tools?

When it comes to your cash flow, an ounce of prevention is definitely worth a pound of cure. You can manually calculate your cash flow forecast in Excel if you have time. Or, try more powerful, automated cash flow forecasting tools to save time and enable you to run different types of projections. A subscription-based option like DryRun, for example, lets you run if/then scenarios to measure the impact of different activities on your projected cash flow.

What are the top cash flow tools?

The top cash flow tools close the gap between invoicing and your receipt of cash for that invoice, enabling you to carry on with the important business activities that help your company grow. Top cash flow tools like FundThrough solve for small business negative cash flow and empower entrepreneurs to focus on running their business, instead of trying to collect payments.

Are there free cash flow solutions?

Absolutely. In fact, FundThrough accounts are free forever, with an innovative repayment structure designed to suit the unique needs of small businesses. You pay a small fee for our invoice factoring service, which funds your invoices within 24 hours rather than making you wait 30, 60 or 90 days for client payment. Right away, you can process payroll, buy inventory, advertise and more.

Business Cash Flow Statements

Cash Flow Statement Basics

What is a projected cash flow statement?

A projected cash flow statement shows the difference between your company’s net cash inflows and outflows for a specific period of time.

How do cash flow statements work?

Cash flow statements work by alerting business owners to potential gaps in cash flow before they happen. This enables you to prepare and apply positive cash flow management strategies like invoice funding, so you can avoid a cash flow crisis and continue growing your business.

Who uses a business cash flow statement?

As a small business owner or entrepreneur, you’ll use your cash flow statement often to ensure that you always have enough free cash flow to pay employees and suppliers, buy inventory and equipment, and otherwise invest in the success of your business. Your accountant, potential investors and loan officers might also request a copy of your business’s cash flow statement as it helps them evaluate your financial health.

Why do businesses use a cash flow statement?

Businesses use cash flow statements as a critical financial management and business planning tool. Cash flow statements are important because you need to know if, at any given point, you are going to have enough liquidity to pay for your current liabilities like payroll, inventory, capital assets and more.

What financial questions does a cash flow statement answer?

A cash flow statement primarily answers the question: “Will we have enough money coming into the business to cover what’s going out for this period?” If you see a cash flow gap in your future, your cash flow statement can also help you answer the question: “Where can we find the cash to meet those financial obligations?” For example, if you see that you are going to have a negative cash flow situation next week, but you have invoices out that could cover the gap that aren’t due until the week after, you can use a tool like invoice funding to create the cash flow to get you through.

How can a cash flow statement be useful in my decision making?

A cash flow statement can be incredibly useful in your decision making as it highlights both potentially hazardous cash flow situations, but also opportunities for your business to grow. It’s critical that you understand where and how cash is flowing into your business so you can put it to work in the areas that matter.

What are cash flow financing activities?

Cash flow from financing activities refers to the cash and cash equivalents coming into and going out of your business from the issuance of debt and financing. Issuing new stock, paying out dividend payments, and repurchasing stock from your shareholders are all examples of cash flow from financing activities.

Why is a cash flow statement important to investors?

A cash flow statement is important to investors because it helps them understand the financial health and growth potential of your company. If a potential investor sees consistently negative cash flow over time, they may question your ability to meet your financial obligations. On the other hand, negative cash flow from investing activities coupled with positive cash flow from operations might tell investors that your company is investing in its growth. Cash flow is just one aspect of your business investors will want to see, but it’s an important one. You can learn more about the different types of cash flow here.

Is a cash flow statement needed to get a business loan?

Most lenders and investors will want to see your cash flow statement as part of their evaluation of your business.

Who prepares the cash flow statement?

As a small business owner, you may not yet have the support of an in-house finance team. Thankfully, cash flow forecasting is fairly simple to do, so you won’t need to pay an accountant every time you want to see a cash flow statement. You can learn how to prepare them yourself in our Calculating Cash Flow section.

Where can I learn how to prepare a cash flow statement?

You can learn how to prepare a cash flow statement in our Calculating Cash Flow section.

What does a cash flow statement look like?

Your cash flow statement, or statement of cash flows, contains the following:

your company name
the date range being evaluated
your net income broken out across three categories:
- cash provided by operating activities
- cash provided by financing activities
- cash provided by investing activities
adjustments to reconcile your income to the actual amount of cash flowing into the business, which might include accounts receivable, credit card payments in processing, taxes payable, etc.
your net increase or decrease in cash, measured over the term of the statement period

This shows you whether your cash flow over a specific period was positive or negative. If you would like to use cash flow projections to anticipate cash flow in future, try cash flow forecasting.

Cash flow statement vs balance sheet: What’s the difference?

A cash flow statement shows the difference between your cash inflows and outflows over a specific period of time. Your balance sheet is a statement of your assets, liabilities and capitals at a specific point in time.

Cash flow statement vs budget: What’s the difference?

Your business’s cash flow statement shows how much money flowed in and out of your business over a specific period of time. A budget tells you the amount of money you can spend over a period of time, given your revenue, assets and liabilities.

Cash flow statement vs general ledger: What’s the difference?

Your general ledger is your company’s main accounting record and consists of all of your numbered accounts, typically categorized by assets, liabilities, owner’s equity, revenue and expenses. Your cash flow statement is a report that shows your cash inflows and outflows over a specific period.

Does the tax agency require a business cash flow statement?

Yes. Your business’s cash flow statement is a key financial document (alongside your balance sheet, income statement, and statement of owner’s equity).

Is a cash flow statement mandatory for a small business?

Yes. Your cash flow statement is the official record of cash and cash equivalents flowing into and out of your company.

When should a business update its cash flow statement?

If you are using an automated bookkeeping solution like QuickBooks or Xero, your cash flow statement will be updated each time you run a new report, so long as you have been inputting all transaction data. You might run your cash flow statement monthly to review with your executive team or financial planner/accountant, but can run this report as often as you’d like to see it. Don’t confuse your cash flow statement with a cash flow forecast; you’ll want to see cash flow projections often so you can make informed decisions for your business.

Where can I learn how to read a cash flow statement?

Working your way through our Ultimate Cash Flow Guide will help you become comfortable with the terminology and accounting principles necessary to read a cash flow statement.

Your Cash Flow Statement Template in 5 Simple Steps

Cash is King, and understanding how and when that cash is going to be available to your growing business is mission critical. Invoice payment takes an average of 61 days in North America, according to the 2017 edition of the Atradius Payment Practices Barometer. What’s more, 92.6% of businesses reported late payments from their customers in 2017.

While cash flow forecasting is an effective tool for predicting a potentially negative cash flow situation before it becomes a crisis, your cash flow statements give you a concrete cash flow history over time. Not only are they an important business planning tool, but your cash flow statements tell potential investors (and those interested in acquiring your company) important stories about the long term health and viability of your business.

What is a cash flow statement template?

A cash flow statement template enables you to more quickly and accurately prepare cash flow statements in manual bookkeeping operations. If you’re using accounting software like QuickBooks or Xero, cash flow statements are one of the reports you can generate automatically using the transaction data you’ve already input in the system. You can also find pre-made cash flow statement templates online. Here’s an example of what a cash flow statement looks like in Google Sheets:

How can you prepare a cash flow statement if you aren’t yet using automated bookkeeping software? Follow these 5 simple steps to get started:

Record your cash flow statement date range.
Input your cash inflows and outflows from each of the three major types of cash flow activities: Operating, Investing, and Financing.
Calculate the total for each type of cash flow activity, then add these three figures together to arrive at your Net Cash Flows.
Record your cash balances at the beginning and at the end of your cash flow statement date range to arrive at your Net Change in Cash for Period.
Compare the sum of your Net Cash Flows with your Net Change in Cash for Period. These sums should be equal.

Where can I find a cash flow statement template?

FundThrough offers a [free, downloadable cash flow statement template] for Microsoft Excel and Google Sheets to get you started. You can either download it to use with Excel desktop, or edit it online with Google Sheets.

Want to learn more about improving cash flow to grow your business? Use our Ultimate Cash Flow Guide to help you master this critical aspect of succeeding in business and growing your company.

Cash Flow Forecasting

Cash Flow Forecasting Basics

What is cash flow forecasting?

Cash flow forecasting is the process of comparing your company’s anticipated cash inputs and outputs for a specific period of time in the near future, to see whether you will have enough cash flow to pay your current liabilities.

What are cash flow projections?

Cash flow projections enable you to see what your cash flow might look like in different scenarios. For example, your cash flow forecast will look quite different if your client is late paying their outstanding $5,000 invoice, as opposed to paying on time.

How does cash flow forecasting work?

Cash flow forecasting works to help you anticipate and prepare for any periods of negative cash flow. If your cash flow forecast shows that you won’t have enough free cash to make payroll next week while you wait for clients to pay invoices, for example, you can avert a cash flow crisis by using a tool like invoice factoring to cover the gap.

Why is cash flow forecasting important?

Cash flow forecasting is important for all companies, but especially for small and growing businesses, because it enables you to avoid a cash flow crisis. When you see negative cash flow looming in your near future, you can take steps to avoid missing payroll, bouncing a preauthorized payment, harming a supplier relationship, etc.

What’s the difference between cash flow forecasting and budgeting?

Cash flow forecasting and budgeting are two very different but important activities. Budgeting tells you how much you’ll have to spend in different areas of your business over a specific period of time. Cash flow forecasting tells you whether you’ll have the free cash flow to pay your current liabilities at any given point in time.

How can cash flow forecasting help a business?

Cash flow forecasting helps your business meet its financial obligations while still ensuring that you have free cash flow for investment and growth activities. Regularly forecasting your cash flow allows you to spot potential gaps in cash flow before they happen, so instead of dealing with a crisis like missing payroll, you can focus on running your business.

How does a small business forecast cash flow?

There are a number of great tools out there to help you automate the process of forecasting cash flow, so you can do it more often with greater precision. Check out our Cash Flow Management Tools & Apps section to help you get started.

Where can I learn how to forecast cash flow?

Learning how to forecast cash flow is easier than you might think. You’ll find the cash flow formula, different cash flow calculation methods and more in our Calculating Cash Flow section.

Where can I learn how to estimate future cash flow?

At times, it might be helpful to quickly estimate your future cash flow rather than sitting down to make precise cash flow forecasting calculations – when you’re in a client meeting and need to set payment terms on the fly, for example. You can learn how to estimate future cash flow by committing the cash flow formula found in our Calculating Cash Flow section to memory.

Who can help me create a business cash flow forecast?

Your accountant or bookkeeper can help you create your business’s cash flow forecast, or you can prepare one on your own. Everything you need to get started, whether you’re going to calculate cash flow manually, on a PC or a Mac, or using an automated or cloud-based solution, is in our Calculating Cash Flow section.

What is the best cash flow forecasting software?

Many business owners prefer cash flow forecasting software that uses data from their accounting platform, to reduce the manual work of inputting data and bringing records up to date. Applications like Float and DryRun can do this for you, and they integrate with accounting software programs like QuickBooks and Xero (both of the aforementioned cash flow forecasting software options are subscription-based with monthly fees).

What are the best tips for cash flow forecasting?

The best tip for cash flow forecasting is that you make it a regular part of your business management activities. It’s important that you always have a clear picture of your company’s cash inflows and outflows so you can make payroll, pay your suppliers, buy capital assets and equipment, and grow your business. Keep exploring our Ultimate Cash Flow Guide to learn more.

Business Cash Flow Financing

Cash Flow Factoring

How does invoice factoring help cash flow?

You’re getting ready to launch a new product and really want to make a splash in your target markets. It’s time to strike while the iron’s hot. Unfortunately, your largest customer has a 60-day payment cycle. Your cash flow is dead in the water for at least another month…

The word is getting out there. You’re providing a great service and getting inquiries about larger projects. You’re nervous, though. You need free cash flow to shoulder the additional expenses of these larger projects that are key to your growth, at least until you can get a few of them under your belt…

Your business is a constant juggling act. You can see that there are sales opportunities there if you can increase your inventory, but it’s so hard when you need to make payroll and your cash flow is dependent on how long it takes clients to pay you…

If you’re experiencing challenges like this in your own business, you’re not alone. Free cash flow is critical not only to the growth of your business, but to its very survival. Running out of cash is one of the top reasons small businesses fail; in fact, 27% of startups die at the hands of a cash crisis.

How can invoice factoring help solve for cash flow?

Bank loans and investors can help fund your company’s growth, but they tend to want to see a pattern of healthy cash flow before they’ll get behind your business. And while crowdfunding is great for those whose campaigns go viral, they’re but a tiny minority (recent research shows that 97% of seed or crowdfunded consumer hardware startups, for example, die or become zombies).

How can you create positive cash flow without heavy financing fees or losing control of your business?

Invoice factoring is a cash flow strategy that works by converting your outstanding invoices into immediate payments. You can end the nail-biting, hair-pulling cycle of stress that is trying to predict and plan around when your customers might pay their invoices.

You don’t have to wait to buy inventory, take on new business, or cover your payroll.

FundThrough empowers you to access your money when you need it, to fund the business activities that sustain and grow your business.

"I run a bookkeeping business and we have a couple clients who are always late paying their bills. I tested FundThrough using one of these client’s outstanding invoices and the funds were deposited into my bank account the next day. The effective interest rate is reasonable and the repayment structure is easy to understand."

Amy Lafleur, CPB

Stamp Bookkeeping Company