Glossary › What is cash flow?

Cash flow refers to the movement of cash in and out of your business. This can be broken down into ‘cash received’ which refers to inflow, and ‘cash spent’ which refers to outflow.

Your cash flow will determine your ability to pay outflows on time like debts, wages, bills, and invoices, according to adequate cash (or cash equivalents) received.

If you don’t have enough cash on hand to pay suppliers and debts, poor cash flow is to blame.

Why is cash flow important?

A business’s cash flow is an essential concept that sits at the heart of sound financial management and stability.

Your cash flow speaks to your ability to both earn revenue and be free of defaults and missed payments. If you aren’t turning over enough cash to pay all your regular outgoings, your business may be in trouble.

What is positive cash flow?

Positive cash flow is when your business is generating or holding more cash than you require to run to operations.

What is negative cash flow?

Negative cash flow is when your business is generating or holding less cash than you require to run your operations.

Cash flow statements

A cash flow statement, or cash flow analysis, is a financial report you can generate, usually through your accounting software, which documents your previous cash flow over a given period.

A cash flow statement template can help you detail inflows and outflows to grant an overview of previous cash flow performance.

Cash flow projections

On the other hand, cash flow projections make use of previous cash flow reports and other inputs to predict the future cash flow of a business. Accounting software can also be used to create cash flow projections.

See related terms

What is free cash flow?
What is working capital?
What is profit?