What is cashflow and why does it matter?

Maintaining a positive cash flow is the number one rule of thumb in business. It’s the net amount of money flowing into and out of your bank account on a daily basis and is crucial to keep healthy. Here’s what it all means. Cashflow forecasting gives you a notable advantage in the market and can help […]

Hannah Dawson

Why maintaining a cash flow forecast is important for small business

Maintaining a positive cash flow is the number one rule of thumb in business. It’s the net amount of money flowing into and out of your bank account on a daily basis and is crucial to keep healthy. Here’s what it all means.

Forecasting cash flow gives you a notable advantage in the market and can help you to stay in business longer. Your cash flow forecast shows you what money is likely to flow in and out of your business's bank account. Key for the (small) business owner. If you’re always looking ahead with regular cash flow forecasts, you will always be prepared for the future. Use Futrli's software for your cash flow forecasting.

Calculating cash flow

Positive cashflow

This indicates that your liquid assets are increasing. It means you can reinvest in your business to hire more staff, acquire new stock, and make improvements to premises. It means you can settle debts, return money to shareholders, pay expenses, and most importantly future-proof against any unforeseen financial pitfalls.

Cash flow is used to assess the quality of a company’s income. For example, how liquid it is. This could indicate whether it can remain solvent.

Negative cash flow

A negative cash flow indicates that your liquid assets are decreasing. It’s an urgent warning that costs need to be reduced to stay afloat. This is where small businesses that are forecasting their financial future have a big advantage.

Knowing what payments are flowing into and out of your business accounts allows you to manage your business better. It can help to buffer small margins, as the owner will know in advance how much cash they need to pull in each period.

Net cash flow

This is a business’ total cash, minus liabilities when looking at financial statements. Your net cash can refer to the amount of cash remaining after a transaction has been completed once all charges and deductions have been removed.

Small-business owners who understand cash flow and their cash flow statement tend to make better decisions than those who focus purely on the income statement. Knowing your company’s cash situation will show you where the cash is coming from, and things you can do to better your cash position.

Getting a good idea of your own cash flow forecast can help you keep an eye on how much money is likely to come in and out of your business account. It helps you maintain oversight of your business cash flow. This additional security is what makes having a cash flow forecast important.

Net cash flow

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