Cash Flow
Cash flow is the movement of money into and out of your business over a period of time. Positive cash flow means more money is coming in than going out. Negative cash flow means you're spending more than you're bringing in. It's different from profit — you can be profitable on paper but still run ou
Cash Flow Definition
Cash flow is the movement of money into and out of your business over a period of time. Positive cash flow means more money is coming in than going out. Negative cash flow means you're spending more than you're bringing in. It's different from profit — you can be profitable on paper but still run out of cash if the timing doesn't work.
Cash Flow in Practice — Example
You run a small landscaping company. In March, you collected $25,000 from clients, received a $5,000 deposit on a new project, and got a $10,000 loan disbursement — that's $40,000 in. You paid $15,000 in payroll, $5,000 in materials, $3,000 in truck payments, and $2,000 in operating expenses — that's $25,000 out. Your March cash flow: +$15,000. But your P&L might show a different number because the loan isn't revenue and the deposit might not be earned revenue yet.
Why Cash Flow Matters for Your Books
Cash flow is the lifeblood of every business. More businesses fail from running out of cash than from being unprofitable. You can have a great product, strong sales, and growing revenue — but if your clients pay in 60 days and your bills are due in 30, you have a cash flow problem.
Understanding cash flow helps you plan for seasonal dips, time major purchases, and decide when you can afford to hire. It separates businesses that survive from businesses that thrive.
Cash flow also reveals the quality of your earnings. A business that generates $100K in profit but only collects $60K in cash has a collection problem. The gap between profit and cash flow tells you whether your revenue is real money or just numbers on paper.
How Cash Flow Shows Up in QuickBooks
Run the Statement of Cash Flows report in QBO under Reports. It breaks cash flow into three categories: operating activities (day-to-day business), investing activities (buying/selling assets), and financing activities (loans, owner investment). For a simpler view, compare your bank balances at the start and end of any period. QBO's Cash Flow Planner (available in QBO Advanced) provides forward-looking cash flow projections based on upcoming bills and expected payments.
Common Mistakes
FAQ
Q: What's the difference between cash flow and profit? A: Profit = revenue minus expenses (what your P&L shows). Cash flow = actual money in minus actual money out. Depreciation reduces profit but doesn't affect cash flow. Loan repayments reduce cash flow but don't affect profit. They measure different things.
Q: How can I improve cash flow? A: Invoice faster, tighten payment terms (Net 15 instead of Net 30), require deposits, negotiate longer payment terms with vendors, and cut unnecessary expenses. Even small improvements compound.
Related Terms
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Related Terms
A cost incurred in the ordinary course of running a business. Deductible business expenses reduce taxable income.
An indirect cost is a business expense that can't be traced directly to a single product, service, or project. These costs support the overall business but aren't tied to a specific revenue-generating activity. Rent, utilities, administrative salaries, and office supplies are common indirect costs.
Book value is the value of an asset on your balance sheet after subtracting accumulated depreciation or amortization. It represents what the asset is "worth" according to your accounting records — not necessarily what you could sell it for on the open market. Book value is also used to describe the
Gross margin is the percentage of revenue remaining after subtracting the cost of goods sold (COGS). It tells you how much of every dollar in sales is available to cover operating expenses and generate profit. The formula is: (Revenue − COGS) ÷ Revenue × 100. A higher gross margin means more room fo
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