Cash Flow
Did you ever hear the term “Cash flow” being used by accountants? In short Cash flow is one of a variety of terms that accountants and business people use without a second thought, but to a novice it can seem all a little intimidating. You shouldn’t worry. Cash flow is very straight forward to explain, and in just a couple of minutes you will have a good grasp of its meaning and implications.
Cash flow is a term used in the financial world basically to refer to incomings and outgoings. This flow of cash, if you like, is the way in which you will cover your costs, assess your success, and value your business.
The in-flow of money is usually achieved through one of three primary activities, namely operational, financing and investing. Operational in-flow of cash refers to money being paid into the business by means of the primary business objective. For example in a florist, the selling of a bunch of roses is an operational activity leading to the inflow of cash.
Financing in-flow of cash is money made by the business by virtue of an outside investment; for example if our florist takes a bank loan this influx in the cash flow would be a financing in-flow. Investment in-flow is money gained through investment on the part of the business itself. For example, if the florist buys shares in manure, the dividends he gets from this would be investment in-flow as it is the result of the business’ own investment.
Conversely, as money comes into a business cash flow also pertains to money leaving your business. There are two main activities leading to out-flow of money; investment as discussed above, and expenses for example the purchase of raw material or the payment of workers.
Sound cash flow is essential to the success of your business as it will be a positive indicator with creditors and investors, plus it will enable you to pay your creditors and employees on time.
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Banking - Business Finances - Economics - Insurance - Investing
Major Purchases - Personal Finances - Stock Market - Taxes
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