The best way to measure small business cash flow in 2023


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As a small business owner, cash flow is king. What is cash flow? Cash flow is the money that moves in and out of your business bank account. Understanding where your cash is coming from and where it’s going is key for decision-making.

Think of cash flow like your car’s gas tank. You fill up the tank with gas, and it empties as you drive. The goal is to have enough gas in your tank so you never run on empty. This article will dive into how to define cash flow, how to analyze it, and how to read cash flow statements to help you better manage your business cash flow.

What is cash flow?

Cash flow is money coming into your business or going out. Cash inflow is the money you collect, while the definition of cash outflow is the money you’re spending. Net cash flow is the cash you have left after all the outflows. 

Cash flow inflows and outflows appear on the cash flow statement as one of the following:

  • Operating cash flow
  • Financing cash flow
  • Investing cash flow

Cash inflow vs cash outflow

Cash inflows can be physical cash or deposits that hit your bank account. 

Cash inflows examples include:

  • Customer payments
  • Asset sales
  • Proceeds from loans

Cash outflow is money you use, which means money leaving your bank account. 

Typical cash outflows examples are: 

  • Credit card or debt payments
  • Paying suppliers 
  • Buying inventory

Cash flow vs. profit 

Your net cash flow from the cash flow statement is different from your net profit that shows up on the income statement.

Cash flow is the movement of money in or out of your bank accounts. Net cash flow is cash inflows minus cash outflows. 

Net profit is revenue minus expenses. Some expenses affect your profit but are not cash flows, such as depreciation expenses. And vice versa. If you pay off a majority of your debt early, it’ll be a large cash outflow that lowers your cash balance. But your profit goes unaffected. This means that net cash flow will not always match net profit.

A cash flow statement uses cash basis accounting. An income statement uses accrual accounting. With cash basis accounting, you keep track of when cash exchanges hands. Accrual accounting records revenues and expenses when they occur.

For example, you pay for a two-year software subscription for $1,000 upfront. Your cash flow statement will show a $1,000 cash outflow on the day you paid. But the income statement breaks down the $1,000 as an expense over 24 months.

What is a cash flow statement?

The cash flow statement is the same as the statement of cash flows. It’s a record of cash paid or received by a business over a given period.

Small businesses should strive to be cash flow positive. What is positive cash flow and why do you need it? You want to generate more money than you’re spending. Being cash flow negative means your business is spending more cash than it’s bringing in. While being cash flow positive indicates you’re generating more cash than your cash outflows. 

Positive cash flow helps make sure you can:

Pay bills

Buy equipment and inventory

Invest in new growth opportunities

Repay debt

The 3 types of cash flow

There are three key types of cash flow sections on the cash flow statement—the operating, investing, and financing cash flows. The type of cash flow will depend on where you get the money, or what you spend it on.

Operating cash flow

Operating cash flow is the same as cash flow from operations. It includes cash from core business activities that involve the sale or production of your goods or services. Examples include customer payments, payroll, and inventory purchases.

To calculate your operating cash flow, you’ll need your net income. You’ll also need any noncash expenses like depreciation and changes in working capital.

Operating cash flow = Net income + non-cash items + working capital changes

Working capital is your current assets, less your current liabilities. This formula adjusts the accrual accounting items—accounts receivable, accounts payable, and inventory—to a cash basis.

Investing cash flow

Investing cash flow is money you spend on fixed assets like equipment. It can also be cash you bring in from selling equipment.

Fixed assets are assets you plan to use for a long time, such as a vehicle or machinery. Buying equipment is an investing cash outflow. Selling some of your fixed assets would be an inflow.

Financing cash flow

Financing cash flow is the money you pay or receive from lenders, investors, or other creditors. Any cash flows related to debt or equity fall into this category. If you took out a loan, that’d be an inflow. But repaying debt or paying dividends are outflows.

How to read a cash flow statement

Cash flow statements provide valuable insights into a company’s finances. But business owners aren’t always sure how they connect.

Each accounting statement can help you understand your company’s performance. The balance sheet and cash flow statement focus on financial management. The income statement shows you the core operating activities generating the most income.

Your cash flow statement should start with your beginning cash balance. Then, add the net cash flow from each of the three cash flow categories.

The ending number should match the cash balance on your balance sheet. Net cash flow over the period for your balance sheet is the sum of all three types of cash flow.

Net cash flow = operating cash flow + investing cash flow + financing cash flow

The operating cash flow section will be the largest section for most businesses. If your business doesn’t have many fixed assets, the investing section will be minimal. Businesses with loans or shareholders will have some activity in their financing section.

Cash flow analysis

Cash flow issues arise when business owners misinterpret profit as cash flow. It’s easy to think that the key to positive cash flow is more sales, but that’s not always the case. 

1. Create a cash flow statement

Creating a cash flow statement is easy to generate.

2. Analyze your cash flows

The second step involves looking at your cash flow and identifying trends. Make sure there’s more money coming in than going out, but look for ways to improve those inflows.

Free cash flow is a helpful metric for analyzing cash flows. It’s the operating cash flow a company generates minus capital expenditures. 

3. Set cash flow goals

Now that you know the major issues, you can address them a bit easier. That means making sure your cash flow aligns with your near-term goals.

These goals can include reducing the time it takes to collect money from customers. Or bringing in additional cash by selling unused assets.

5 tips for cash flow management

Small businesses can manage cash flow better if they know how to calculate it and what to focus on.

Practice calculating it yourself

The best way to understand the definition of cash flow in business is to practice calculating it. Here are the steps to get you started:

Identify the period you plan to analyze

Adjust net income for non-cash items and working capital changes

Add or subtract cash payments for investing and financing activities

Focus on cash flow management, not profits

Profits and cash flow aren’t the same. You can be profitable on the income statement but have negative cash flow. It’s best to focus on managing cash flow, which will determine your ability to pay bills and grow your business.

One tip for boosting cash flow is to get a percentage of a contract or large order upfront.

Keep some cash on hand

Cash is king for paying short-term bills or addressing emergencies. As a business owner, you can’t expect every speed bump. But it does help to have a rainy-day fund to pay for any unforeseen expenses.

A good rule of thumb for business emergency funds is to have enough to cover a month or two of expenses.

Collect cash sooner

QuickBooks found that 89% of small businesses experience growth setbacks due to late customer payments. Getting money in your hands sooner is an easy way to boost cash flow. If your business invoices customers, you have to wait to get your money. Encourage them to pay sooner by offering discounts to those that pay before the due date.

For example, you can offer a 2% discount if you get the payment within 10 days of invoicing. Controlling your accounts receivables is one of the best ways to get customers to pay faster.

Project cash flow

A cash flow analysis helps assess current cash flows. But cash flow projections give you a look at future cash flows. Estimating what your cash flow will be in the near term allows you to make adjustments now. And before they become major issues.


This article originally appeared on the Quickbooks Resource Center and was syndicated by

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5 tips for organic business growth

5 tips for organic business growth

It’s no secret that startups have a prodigious failure rate. In fact, according to a recent study, the four-year survival rate for a startup is just 49%.

With demoralizing stats like this in mind, entrepreneurs may be tempted to grow their profits through any means necessary, including inorganic strategies like acquisitions or mergers. However, the truth is that business owners can achieve impressive growth through organic strategies as well, allowing them to retain control of the companies they built from the ground up.

Also known as “true growth,” organic growth refers to the process of growing a business by reducing costs and increasing sales, either by finding more customers or enhancing output to current clients. On the other hand, inorganic growth occurs when a company merges with or is acquired by a second business. Entrepreneurs should take the time to familiarize themselves with the advantages of organic and inorganic growth, as well as some of the top strategies for execution, so they can decide which is the best choice for their business.

As a new business owner, you’ll likely want to increase profits as quickly as possible. By employing inorganic strategies like mergers and acquisitions, startups can grow their businesses more quickly while taking advantage of resources such as stronger credit lines and expanded market resources. Additionally, joining with another company lets you take advantage of its expertise and experience in the industry to develop your own brand.

By merging with another business, you agree to hand over some of your control and equity to another company. Not only can your initial vision become diluted, but you may also be forced to take on new business and managerial challenges before you’re truly ready. In some cases, you may have to rush to grow your staff and production capabilities to keep up with demand.

On the other hand, organic growth techniques allow you to grow your business on your own timeline. Because you aren’t sharing control with another company, you can hire employees and expand sales at your own pace. Additionally, entrepreneurs who maintain their autonomy now can sell for a larger profit later when the company is fully developed.

While retaining control of your company offers many advantages over the long haul, it can make business growth challenging in the short term. Some entrepreneurs struggle to grow beyond their current marketplace, while others find themselves cut down by the competition. Additionally, new businesses must often fight to make ends meet from month to month. Fortunately, strategies exist to help startups grow their profits without handing over control to partners or investors.

Here are just a few of those strategies to help you grow your business organically:

Want to grow a business that will feed your family and employees for years to come? The first step on the road to entrepreneurial success is starting the right kind of company.

With home-based and e-commerce businesses, you can avoid expenses like rent and commuting during the early, lean years of your company. As an added bonus, working out of the home lets you write off parts of your mortgage and electric bill. You can then invest these savings back into the business to help you grow in the long term.

A common conundrum for new business owners is whether to take your full cut of the profits or invest the money back into your company. While you may be tempted to keep some of those hard-earned dollars for yourself, you should aim to reinvest gross profits whenever possible to help your business grow. Investing your own money shows prospective clients and lenders that you are confident in your company’s long-term potential.

Not sure where to put profits? When in doubt, invest in marketing, SEO and other tactics likely to generate more business for your startup. If your income permits it, you may also want to invest in employee training and technological improvements, as these can yield large profits down the line for your company.

No matter how happy your current clients are with your offerings, you will have trouble growing your business organically if you don’t put effort into finding new sales channels. If you don’t currently sell your goods online, you should definitely consider starting a website to expand your reach to other regions. Additionally, you can introduce new products, cross-market services to your existing clients and expand to different markets. For example, a company that specializes in SEO may want to expand its services to include social media and search engine marketing.

Finally, business owners should employ market segmentation to customize their strategies according to the specific channels they are leveraging and the specific markets they are trying to reach. This way, you can create unique campaigns based on customer location and demographics and watch your sales rates skyrocket.

As a new business owner, you may feel the urge to micromanage everything that happens at your company. However, the truth is that macro-management is a far more effective way of enabling organic growth for your startup.

To keep your company moving forward, you should train top employees to take over some of your daily responsibilities. While you may be tempted to keep costs down by hiring employees who will work for less, in the long run these staff members could end up costing you more if their efforts aren’t up to par. Find people you can trust to get the job done—even when you’re not around—so you can focus on growing and developing your business in the years to come.

From minimizing spending, to reinvesting profits back into the business, organic growth strategies help ensure that you will retain control of the company you worked so hard to build. Do your research, and consider all the growth strategies available in order to give your business the best shot at success.

Do you know how sales taxes are impacting your bottom line? Check out our sales tax calculator.

This article originally appeared in the QuickBooks Resource Center and was syndicated by

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