Q&A - What is 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.