The term cashflow gets banded around businesses all the time, but not everyone knows what a cashflow is let alone fully understand one.
A cashflow is, at its heart, a report that simply shows the flow of cash in and out of a business. It varies from a profit & loss as it records the actual cash movements rather than the invoices themselves, it is also used to predict future cashflow rather than showing historical information.
The cashflow process is about “balancing the books”, by that we mean balancing your income (cashflow in) and your expenses (cashflow out). As long as your cashflow is greater than your cashflow out, i.e. your money in is greater than money out, you are in a positive cashflow. In simple terms you have “excess” cash that is required for your business to operate.
While cashflows can vary in complexity depending on your business, both size and the industry you are in, they all boil down to the same thing at their heart. Every business will need a positive cashflow as without it any business will collapse no matter how much profit it is showing on paper.
Keeping an eye on our cashflow is always important to keep your business healthy, it’s even more important now. With price increases, global turmoil and several other factors all applying pressure it’s important to make sure you are still generating more cash than you are spending.
A cashflow can be used beyond simply making sure your making money, by running the forecast it helps you predict future cash deficits, months with higher costs and help plan when to make larger purchases.
If you’d like more information on cashflow, or would like to discuss receiving cashflow reports, please get in touch with us.
