An essential part of keeping a business running is ensuring you have adequate cash flow. Without that, your business might not be able to meet vital obligations such as payroll, accounts payable, loan payments, or take advantages of new opportunities.
Using a simple cash flow calculator can not only show where you are spending your money, but it can help you understand how much cash is available for those vital day-to-day obligations.
What Should I Consider?
To get an accurate picture of your current or future cash flow, you need to realistically consider all funds coming into your company as well as all expenses. Planning on adding a new piece of equipment, selling a company-owned investment, or changing employee insurance plans? Be sure to factor those costs or savings into your calculations.
What is my current cash flow?
What If We See A Negative Cash Flow?
A negative cash flow is not necessarily a moment to panic. It does raise a red flag, but you need to look closer at what caused that negative cash flow. Was there a large purchase made during the time frame? Did sales slow down during the summer? Did your line of credit’s annual percentage rate increase because of a change in the interest rate environment? Working with your financial advisor and accountant to look at the causes of a negative cash flow, and whether they are temporary or reflect a longer-term, can help you to understand if your business can weather the downturn or if you should explore options such as an infusion of cash from borrowing, a refinancing, or something more.
Common Business Terms
Below are some common terms that may apply to your business, so be sure you are familiar with them before starting your cash flow calculations to make the most of your analysis.
- Cash at beginning of period: Total cash available at the beginning of the period.
- Cash at end of period: Total cash calculated for the end of the period. If this amount is lower than your beginning balance, your business has a negative cash flow. If this amount is negative, you may need to increase your cash flow to maintain your current operations.
- Received from customers: Cash received from your customers for the period. Make sure this amount is based on your actual receipts, not your booked sales. An increase in your accounts receivable may increase your profit on paper, but it does not change your cash flow.
- Other cash receipts: Any other cash received during this period. Again, make sure this amount is based on the amount actually received.
- For inventory: Total cash paid for the period to purchase inventory. Like your cash received, your cash paid during a period should be your actual cash payments.
- For insurance: Total cash paid for insurance, advertising, rent payments and lease payments.
- For payroll: Total cash paid for your payroll and employment taxes.
- Other payments: Any other cash paid during this period for your operations. This may include one-time expenses or incidentals such as postage, couriers, or office supplies.
- Interest paid: Total interest expenses you paid during this period.
- Sale of property: Include any cash received during this period from the sale of assets, including real estate, tangible assets and intellectual property.
- Sale: Cash received from the sale of any investments held. This includes the sale of investments in other companies, the sale of stock and the sale of bonds. It does not include issuing new stock or bonds for your company. This source of income is included in the financing section of your cash flow statement.
- Other activity: Any other cash received from your investment activities.
- Capital expenditures: Cash used to purchase capital equipment or land for use in your business.
- Purchases: Cash used to purchase new or increase the holdings of your investments. Like the sale of investments, only include the purchase of external investments. Stock buy back, and debt retirement are included in the finance section of your cash flow statement.
- Other Use: Cash used for any other investment activity.
- New borrowing: Net new borrowing for the period. Include new borrowing as well as the net increase in any line of credit borrowing.
- Stock issuing: Net cash received from issuing stock. Make sure this is the net amount, after any fees have been taken into account.
- Capital contributions: Any cash received from the owner(s) for the period.
- Loan repayments: Total loan principal repayments for the period. Do not include interest. Interest is included in the operating expenses of the cash flow statement.
- Dividends paid: Any cash dividends paid for the period.
- Other distributions: Any other financial distributions made during this period.
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