Cash Flow Class: Money In, Money Out.

Cash Flow Matters: Understanding your business's cash flow is crucial for maintaining financial stability, planning your growth, and understanding your funding options. To stay ahead of the game, use cash flow calculations to assess the health of your business and identify potential problems before they happen.

Isn't it super easy? Sort of, cash flow is just the amount you make minus the amount you spend, but a growing business should look a bit deeper at the numbers.

Welcome to our little math class to get those numbers right. Step by step:

  1. Calculate Your Operating Cash Flow: This is money you make from selling your products or services, minus the money you spend on things like manufacturing products, salaries, and rent. A company that makes $250,000 in a month that burns $100,000 in working capital in the same month has Operating Cash Flow of $150,000. (pro-tip, if you have non-cash expenses like asset write-downs, those go in the plus column here)
  2. Calculate Your Investing Cash Flow:  This is the money you spend on buying or selling assets such as property, equipment, or investments. If you bought a $1,800 screen printing machine and sold the company van for $7,000, Investing Cash Flow for the month would be $5,200.
  3. Calculate your financing cash flow: This is the money you get from loans or investments, minus the money you pay back or give to others. So if you get $75,000 in inventory financing and pay back $24,800 on business credit cards, your Financing Cash Flow in that month would be $50,200.
  4. To find your total cash flow, you add up all these numbers together. This tells you how much money you gained or lost during a certain time period. Our example business has positive cash flow of $205,400 for the month.

Yes, that's the same number as the easier Money In minus Money Out calculation, but it's useful to know where cash flow falls in certain categories. You might not get inventory financing on a monthly basis, so it's good to know you can't count on that $75,000. And you probably don't sell a company van very often. With a deeper look, you can make better bets on how you spend the money you make to grow your business.

You're always better off when you can make informed decisions regarding budgeting, investment, and growth strategies. Cash Flow analysis helps you plan your budget, decide where to invest, and figure out how to make your business grow.

We hope you found this guide helpful. If you have any questions or additional insights to share, please leave a comment below.