They say money doesn’t create happiness…well in the business world…it does. In order for a business to run and function it needs a sufficient cash flow. Business needs cost money and without working capital to support those, the business is going to sink pretty quickly. Business owners should be performing a cash flow analysis monthly in order to project what their funds will be for the upcoming accounting period.

First, understanding why a cash flow analysis is important is the best place to start when developing a cash flow projection. Once you understand its purpose you will have a greater respect for why it is such vital piece of a business’s financial records.  Cash flow is the movement of a company’s money. A cash flow analysis studies the way money comes and goes within a business. This ultimately helps determine patterns in your business’s accounting cycle and can help evaluate a company’s financial well-being as well as predict what types of financing will be needed in the future.

The break down of your business’s cash flow analysis should begin with your Starting Cash; the cash the business has on hand at the beginning of the month.  Next you calculate the cash in and cash out of each of the following business activities:

Operating Activities- Sales & business expenditures such as marketing expenses and tax payments, etc.

Investment Activities- The inflow & outflow of purchases and sales from long-term business investments such as property, assets, and equipment.

Financing Activities-Any money that is related to financing your business such as loan payments and debts.

Lastly, you calculate your business’s Ending Cash; the ending balance after expenses are subtracted from starting cash plus the cash in activities.

Your cash flow statement should look similar to this:

Graphic courtesy of

Once you have calculated and evaluated your company’s cash flow, now how do manage it for a better future outcome?

Organization is HUGE. Staying organized and on top of your company’s incoming cash and expenses is primarily the first step to managing good cash flow. Keep track of all your business expenses using pre-numbered receipts so you can trace exactly where the money is being spent, how much, and what it is being spent on. This can also help you decide where you need to spend money the most and where you can cut back on some expenses in order to preserve funds. Lastly, after submitting a project be sure to send out customers’ invoices quickly and require them to be collected within 60 days or less. This will prevent customers from stalling your cash in flow and making you default on another other business expenditures or loan payments.

Here are some helpful tools to determine cash flow projections:

Cash Flow Calculator

Business Plans & Financial Statement Templates


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