Every small business owner wears a number of hats as they begin their journey as an entrepreneur. One of those hats is often accountant or bookkeeper, as business finances can't be neglected. When it comes to these roles, knowing the answers to "What is cash flow and how do you use it?" is key.
To ensure your business is healthy in the near future and long haul, let's examine what cash flow is, then dive into how you can perform a cash flow analysis and create a statement of cash flow.
What is cash flow?
Cash flow is a financial forecast that allows you to see money coming in and leaving as a result of things like your business activities, expenses, and debts.
Positive cash flow is when a business's money coming in exceeds its cash outflows. This is typically a good thing, as a positive cash flow often equates to stronger working capital. With working capital, a business can purchase necessary equipment, hire employees, and invest more in the growth and success of their business. Positive cash flow also opens you up to the possibility of paying back loans and other debts.