Glossary · Finance
What is Cash Flow?
Definition
Cash flow is the movement of money into and out of your business over a period of time, showing whether you have enough cash on hand to pay bills when they come due.
Net cash flow = cash coming in − cash going out
Why it matters
Profit and cash are not the same thing. You can show a profit on paper while running out of cash because customers have not paid yet or because you spent heavily on inventory.
A landscaping company finishes $8,000 of jobs in March but invoices on net 30 terms, so the money arrives in April. Meanwhile it must pay $5,500 for payroll, fuel, and equipment in March. Despite being profitable, it faces a $5,500 cash hole for a month.
Forecasting cash weekly or monthly lets you see squeezes early. Tools like deposits, shorter payment terms, and a small cash reserve all help smooth it out.
Common mistakes
- !Watching profit only and being surprised when the bank balance hits zero.
- !Offering long payment terms to customers without checking you can afford to wait.
Frequently asked questions
What is Cash Flow?
Cash flow is the movement of money into and out of your business over a period of time, showing whether you have enough cash on hand to pay bills when they come due.
How do you calculate Cash Flow?
Net cash flow = cash coming in − cash going out
What mistakes do beginners make with Cash Flow?
Watching profit only and being surprised when the bank balance hits zero. Offering long payment terms to customers without checking you can afford to wait.
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