Understanding and managing cash flow is a challenge for many business owners, particularly new business owners. While we all know that cash is necessary to getting a business started and keeping it going, it can be difficult to determine just how much cash you actually have on hand at any given time.

But knowing how much money is moving through the business is critical to knowing whether or not your income is enough to cover your expenses and will provide you with a solid number for your gross business income. This is where a business cash flow analysis comes in.

What Is Cash Flow?

Cash flow refers to the movement of money in and out of the business. Money that comes into the business as the result of sales, investing, loans, etc. is referred to as “Inflow”. Money that goes out of the business for expenditures, purchases, or debt repayment, for example, is “Outflow”.

A business’ cash flow is how money balances between these two numbers. Ideally, you want to maintain enough funds on hand to cover your operating expenses and bills with a cushion for unexpected costs that inevitably arise.

Business Cash Flow Analysis

Periodic business cash flow analysis and reporting are used to check on the financial health of the business. These reports can help project anticipated cash flow for the next several months or even years. Armed with this information, business owners can make sound business decisions, having a better idea of what they can and cannot afford, and even analyzing trends in the business.

A business cash flow analysis doesn’t look solely at what is coming in and what is going out. It also takes into account non-cash assets as well as expenditures to arrive at a profit figure. The cash flow statements will typically include three parts:

  • Operating activities. This covers basic income and losses or expenditures.
  • Investment activities. Here you will find the inflows and outflows that result from purchases and sales of business investments. This may include the purchase or sale of property, assets, equipment, and securities.
  • Financing activities. Any activities that have been financed will be reflected here such as receiving a loan and the loan repayments.

Understanding cash flow and making projections is a confusing endeavor for most new business owners. Until you get a firm understanding of inflows and outflows, a CPA cash flow review is money well spent to ensure the financial health of your company.

For more information about buying or selling a business in Florida, contact Crowne Atlantic Properties at 407-478-4101.