Updated: Feb 22
Cash is needed to pay business expenses. Cash flow describes how a business receives cash (cash inflow) and spends it (cash outflow).
A cash-flow forecast is important to every business as it estimates the cash it needs to sustain its business operation. Examples of cash inflow and outflow are;
Revenue from cash sales
Repayment from customers on trade credit
Sale of assets (non-current assets)
Cash from loan
Profits/dividend from other companies a business own
Issuance of new shares
General expenses such as utility bills, rent, insurance
Purchase of assets
Payment to suppliers
Payment for goods and services with cash
NET CASH FLOW = CASH INFLOW - CASH OUTFLOW
A positive net cash flow refers to more cash inflow than outflow. Should there be more cash outflow than inflow (negative net cash flow), a business will need to obtain additional financing to sustain its business operation.