What Is Cash Flow?
“Cash flow” refers to the money that moves both in and out of your business each month. It’s one of the strongest indicators of the financial health of your business.Cash flow includes the income generated by consumers, clients, and subscribers who are purchasing your products and services, as well as the income generated by the collections from your accounts receivable department.Cash flow also includes the money being spent by your business through payments and expenses. This could be mortgage payments and rent for your business, taxes, fees, and cost of employee salaries, among a variety of other expenses.In essence, businesses should think of their cash flow in the same way that an individual thinks of a personal checking account. Positive cash flow indicates that more money is coming in than is going out, whereas a negative cash flow means you might find yourself in a bit of trouble covering your bills.What Is the Definition of Annual Cash Flow?
“Annual cash flow” refers to the amount of cash that circulates in and out of a business during the fiscal year. Businesses can determine their annual cash flow by:- Gathering all of the cash receipts they receive as payment from customers, money they receive through investors, and outstanding invoices billed throughout the year. This amount equates to your annual cash inflow.
- Add each of the amounts that your business paid as expenses, including employee wages, inventory management and purchases, rent, taxes, and equipment expenses. This number represents your annual cash outflow.
- When you have these two numbers, subtract your total cash outflow from your total cash inflow to determine the annual cash flow of your business. This number can be either positive or negative.