Cash flow - introduction

Author: Jim Riley  Last updated: Sunday 23 September, 2012

Finance - Introduction to cash flow

Cash flow describes the movements of cash into and out of a business

When you look at the bank statement of any business, you soon realise that cash flow is a dynamic and often unpredictable part of business life. 

In business, cash is always on the move…

• Cash flows into the bank account when customers pay for their sales, when a loan is received from the bank, interest is received or when assets are sold
• Cash flows out of the bank account when suppliers are paid, employee wages and salaries are paid; interest is paid to the bank and so on

You need to be able to distinguish between:

• Cash inflows: movements of cash into a business
• Cash outflows: movements of cash out of the business

The difference between the cash inflows and cash outflows during a specific period (e.g. a week, month) is known as the “net cash flow”.

The challenge for any business (particularly a start-up) is to ensure that it manages its net cash flow to ensure that it does not run out of money.

Main types of cash inflow and outflow

The main types of cash flow can be summarised as follows:

Other Business Study Resources You Might Like on tutor2u

Add your comments and share this study note:

Search tutor2u

Related study notes

Introduction to finance
Why businesses need finance
Startup finance considerations
Entrepreneur finance - personal sources
What is profit?
How profit is used by a business
Revenues
Demand
Estimating demand
Business costs
Breakeven - introduction
Breakeven - contribution
Introduction to cash flow
The cash flow forecast
Causes of cash flow problems
Handing a cash flow problem
Analysing financial performance
Balance sheet
Profit and Loss account
Sources of finance
Bank loans and overdrafts
Shares as a source of finance
Other external sources of finance
Depreciation

Download for Android

Download for IOS