Like a river flows on, so should your company’s cash.  While there are multiple ideas on the source of the term, the fact remains it all has to do with money (payments) coming into and out of your enterprise.

It is the net amount of cash an enterprise receives and disperses during a given period of time.

So, why should I care about cash flow? It really is the picture of how well a company manages its cash.  That is, paying its debt as well as funding operations. A cash flow statement is a complement to the balance sheet and the income statement.

In other words, cash flow is a component of the self portrait of your company’s financial health. Cash flow is about value and liquidity.

If you need or want to tell a clear picture of your company and its financial health, you need to know its cash flow.

The cash in cash flow comes from three activities:

  • Operating
  • Investing
  • Financing

Operating cash is that which is spent on the day-to-day operation of the company.   It comes from sales of the company’s goods and services.  It also reflects where that cash is going for things like rent, salaries, supplier expenses and taxes.

Cash from investment activities includes the sale or purchase of a fixed asset, loans paid to others or payments made into investment vehicles.

Financing activities cash includes that from banks and investors as well as payments made to investors.

The bottom line on cash flow is just that: the bottom line.  It is a valuable measure of the strength, profitability and long-term future of the company.

Understanding cash flow is key to understanding and plotting out a strategy for your company.

For more on cash flow, call or write to us.  TFO Solutions is dedicated to helping entrepreneurs and business owners with their finances from the back office to the boardroom.