Common Cash Flow Questions

Common cash flow questions asked by business owners and entrepreneurs

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Cash flow is a tricky concept that many business owners and entrepreneurs struggle to understand.

Taking time to understand what cash flow is and how you can manage it will significantly change the success and health of your business.

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Common Cash Flow Questions

Common Cash Flow Questions

Discover how a pro forma cash flow can help you manage your income and expenses.What is a pro forma cash flow?

  1. What is cash flow in business?
  2. What is cash flow from operations?
  3. What is a cash flow analysis?
  4. What is a cash flow projection or forecast?
  5. Why does my business never have enough cash?

Discover answers to the most common cash flow questions asked by business owners and entrepreneurs.

What is cash flow in business?

Cash flow generally refers to the movement of money in your business. Your business earns revenue by selling products or services to customers and pays expenses from vendors and suppliers. Cash flow moves from your customers, and some of it goes to your vendors and suppliers. The remaining cash can pay down debt and liabilities or purchase inventory, equipment, and other assets.

What is cash flow from operations?

A business will prepare a Profit and Loss statement that details revenue generated and expenses incurred. The difference is net profit/income. Because financial statements are prepared based on accounting rules and principles, the net profit/income can include expenses that have not been paid for and do not necessarily reflect a company’s profitability. The simplest example would be depreciation. Depreciation is a non-cash expense that a company records for accounting purposes but will not prepare a check that will go through a bank account. Cash flow from operations is the presentation of a Profit and Loss statement that adjusts for the non-cash expenses recorded.

What is a cash flow analysis?

A cash flow analysis refers to the amount of cash a business is using across three (3) categories:

  1. Cash flow from operating activities – the cash generated by regular business activities.
  2. Cash flow from investing activities – cash used for long-term investments, including purchasing inventory, equipment, or other assets.
  3. Cash flow from financing activities – cash put into the company by owners, bankers, or investors.

A cash flow analysis aims to help business owners understand where their money is going.

What is a cash flow projection or forecast?

Projecting or forecasting the movement of cash for a company is an exercise that considers many different assumptions to help an owner understand how their business will perform over time. The ultimate purpose of a cash flow projection or forecast is to speculate about future business activities based on assumptions. A cash flow projection is a budget used to benchmark and measure performance and guides management decisions regarding cash adjustments.

The best way to compile and present the information is to line up everything with a week number. For example, if you are in week 20 for the year, what financial transactions will occur on week 20? What are the cash inflows and outflows for week 20? Seeing your information every week with a projection for the following weeks is the simplest and easiest way to get a handle on the cash in your business.

Why does my business never have enough cash?

There are many different reasons why a business may not have enough cash, including:

Top 10 Reasons a Business Runs Out of Cash

  1. a company is not monitoring its cash flow on a regular and consistent basis
  2. a company does not have a pro forma that it uses to manage and adjust its cash flow
  3. accounts payable are greater than accounts receivable
  4. the expenses of a business exceed the income of the business
  5. a company owes more than it owns
  6. a company has not priced its products or services properly
  7. a company does not manage its inventory well
  8. the margins for a company do not cover the cash required between having to pay expenses and collect revenue
  9. accounting records are not up to date or have mistakes that make it hard to figure out cash flow
  10. a business owner doesn’t have access to the expertise needed to manage cash flow well

The best way to ensure your business has enough money is to prepare and use a pro forma cash flow every week.

Check out these other resources:

Cash Flow Quadrant for Business Owners
The Perfect Pro Forma Cash Flow
Dylan Gallagher

About me

I own a few businesses and am always looking to help a business owner with theirs.

I know firsthand how important it is to manage cash so let’s connect if you have common cash flow questions – I’d be happy to help.

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