Many factors contribute to building a business that is profitable and successful. Accurately tracking your company’s financial health is key to that journey. Measuring your company’s cash flow is an essential step every business needs to take, and in this article, we’ll break down what cash flow is and how to compare inflows and outflows. 

What is cash flow in business?

Cash flow is one of the most fundamental accounting areas within any business’ finances. Put plainly, it is the net cash moving in and out of a company. As you may imagine, a positive cash flow is key to profitability and this can all be tracked in a cash flow statement—one of the accounting reports that will show where a business’ cash is going and can indicate how well that business is managing its income and debts. Cash flow can come from investing (CFI), financing (CFF), or operations (CFO). 

Without a positive cash flow, a business won’t have the funds and resources to reinvest in growth, whether that’s in the form of new products, services, hiring, inventory, research, innovation, or whatever fits your industry. A key part of this cash flow statement is the “bottom line”—the net increase or decrease in cash and equivalents which allows a business to compare its performance against other periods and forecast plans for the short- and long-term future. 

Understanding what is cash inflow 

As mentioned above, cash flow tracks money moving in and money flowing out. The former is considered “cash inflow.” It refers to the funds that enter the account over time from various sources including sales and revenue, investments, interest gained, loans, financing, grants, etc. Any influx of funds from regular business activity or even one-off events are considered cash inflow. 

What is cash outflow? 

Cash outflow is the opposite of cash inflow—it’s the money moving out of the account to cover various business expenses including operating costs, debts, liabilities, and more. While cash is coming into the account, it costs money to sustain and run the business, so the cash outflow will track this amount. Think of everything it takes to run a business from payroll to inventory, vehicle leases, travel expenses, equipment, subscriptions, technology, etc. 

Tips for optimizing business cash flow 

Essentially, the key to succeeding in business is to have a cash inflow that exceeds the cash outflow. This indicates a profitable business. But tracking this isn’t always easy. To make this simpler, you need to optimize your business cash flow so your numbers are up-to-date and accurate. Here are some tips to make this process smoother: 

• Speed up your incoming payments (this is where Modern Receivable can help)
• Raise your prices when necessary 
• Time your cash outflows so you don’t drain the account 
• Manage your inventory and expenses 

Say goodbye to chasing payments

At Modern Receivable, we offer autonomous invoice follow-ups to help you get paid on time and keep your cash flow under control. Too often, businesses are waiting on unpaid invoices or slow payment processing which can lead to loss of revenue or wasted time. Our centralized invoice management system keeps you organized and enables you to process your payments on time so you can achieve a positive cash flow with your business. Sign up today to get started.