Cash in, cash out: What is cashflow?
Cashflow is the lifeblood of a business. At its most basic, a cash flow statement shows ‘how much cash is generated and used’ by a business at any given time, divided into operating cash flow, investing cash flow and financing cash flow (CFI Education, 2022).
Since a cash flow statement format reflects the movement of money into and out of a business, it is a vital tool for understanding and analysing the heath of a business on a day-to-day basis.
Benefits of a cash flow statement:
- It gives an indication of how much cash a business is generating through its operations, allowing business owners to optimise and improve the core functions of their business.
- It provides a view of where cash comes into the business and where it goes out.
- It provides a real-time view of a business’s operations as it only deals with cash that has come in or left the business, as opposed to a financial statement which deals with projected revenues and expenses.
Naturally, cash flow is vitally important for a business, and cash flow difficulties could negatively impact a business in a number of ways. Firstly, businesses with negative cash flow may be unable to meet their basic operating costs such as paying salaries, buying stock or renting business premises. Secondly, negative cash flow may hamper plans for expanding a business as it could limit a business’s ability to invest in new operations, equipment or locations. Lastly, a negative cash flow could act as a deterrent to investors looking to support the business, particularly with regard to cash flow from financing activities.
Ensure a healthy cash flow for your business
Careful monitoring, understanding and recording of your business activities is the best place to start when analysing your business’s cash flow. However, no matter how well you plan, the fact is that most businesses are likely to face unexpected challenges that could have a negative impact on their cash flow. Fortunately, this can be mitigated with the business overdraft facility available on Standard Bank Business Current Accounts.
With a business overdraft, you get access to cash for your business when you need it most and only pay interest on the balance of funds used. You can apply online in seconds and access your funds 24/7 directly from your business current account, ensuring you can keep your cash flow healthy in between your monthly payments and collections.
References
CFI Education. 2022. ‘Cash Flow Statement’. CFI Education Inc. [Online] Available: https://corporatefinanceinstitute.com/resources/knowledge/accounting/cash-flow-statement%E2%80%8B/. (Accessed 17 May 2022).
Economic Times. 2022. What Is ‘Cash Flow’? The Economic Times [Online] Available: https://economictimes.indiatimes.com/definition/cash-flow. (Accessed 17 May 2022).