Cash Flow

Cash flow is the movement of money into and out of a business. It shows how cash is generated and used over a period. Inflows come from operating activities, like customer payments, as well as investing or financing activities, such as asset sales, loans, or equity funding. Outflows include payroll, supplier payments, taxes, debt repayments, and capital investments.

Cash flow differs from profit. A company can appear profitable on paper but still face cash shortages due to timing differences between revenue recognition and actual cash receipts. It measures liquidity, showing the business’s ability to access cash for daily operations, including payroll, bills, and purchases.

Cash flow is a net measure. Companies calculate it by subtracting outflows from inflows. When cash inflows exceed outflows, the business experiences positive cash flow; conversely, when outflows surpass inflows, cash flow turns negative. This makes it a vital indicator of short-term financial health.

Unlike profit or net worth, cash flow tracks only actual cash. Many assets, such as real estate, equipment, machinery, and intellectual property, cannot convert quickly to cash despite their value.

Monitoring cash flow helps businesses plan for obligations, make strategic investments, and avoid liquidity problems. It is a key metric for assessing financial stability, operational efficiency, and a company’s ability to grow.

Cash flow is critical for maintaining liquidity, supporting business growth, and managing financial risk. Positive cash flow ensures that a company can meet its obligations, invest in opportunities, and operate smoothly, while negative cash flow signals potential financial stress.

Businesses measure cash flow using a cash flow statement and analyze it with metrics like free cash flow, cash flow margin, and cash burn rate. Cash flow splits into three categories: operating, investing, and financing activities. Companies can calculate it using the direct method, which tracks actual cash receipts and payments, or the indirect method, which starts with net income and adjusts for non-cash items and changes in working capital.

Regular monitoring of cash flow helps businesses anticipate shortfalls, manage obligations, and make informed financial decisions. It provides visibility into the timing of cash needs, enabling better planning for expenses, investments, debt servicing, and strategic growth initiatives.

Requesting a demo of Cashbook allows you to see the software in action and understand how it can transform your financial processes. The demo highlights features such as cash application, bank reconciliation, accounts payable automation, and real-time cash flow visibility. During a short discovery call, we identify your specific pain points and financial processes that could benefit from automation. The demo is then tailored to your needs, showing how Cashbook integrates with your ERP, improves efficiency, reduces manual errors, and enables your team to focus on higher-value work.