Small Business Help – What is meant by cash flow

What is meant by cash flow? If you are new to business you may not understand some of the terminology or jargon often used by commentators of business and financial advisers. Here is a nice easy to understand definition of what is meant by cash flow.

Small Business Help – What is meant by Cash flow

Simply put, cash flow is the money coming in to a business as well as the money going out. This includes everything from sales dollars to expenditures for office supplies.

By understanding the true importance of cash flow, small business owners and entrepreneurs will be far more ahead of the game.

At the beginning of the cash flow cycle, nearly every business starts out with – you guessed it – cash. But from that point on, the central purpose of the business is to convert that cash into other kinds of assets or to extend it with liabilities and ultimately turn it back into cash again. Only this time, more cash than the business started with.

This process continues repeatedly throughout the life of a business.

The concept of cash flow can be defined in different manners. Cash flow is any kind of income or expenditure that affects the cash accounts. A cash flow must be strictly, financially liquid cash or finances that can be stored in a bank account or in the form of currency.

Cash flow can be broadly divided into two categories, inflow and outflow.

The cash inflow, or just cash flow, is generated as a result of financing and/or sales.

The cash outflow is a result of many factors such as purchases, investments, salaries and any other expenses.

Please leave a comment if you would like greater clarification on what is meant by cash flow. We will also cover why this is important in other articles.

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Here is an example of a cashflow budget