April is Financial Literacy Month, so let’s focus on understanding the lifeblood of your business: cash flow.

Cash flow is the money coming into (income) and going out of (expenses) your business in a specific period. Think of it as your business bank account’s activity. A healthy cash flow ensures you have enough money to cover bills, invest in growth, and weather unexpected challenges.

Here’s a breakdown of the different types of cash flow in a business:

Operating Activities: Cash flow from operating activities includes cash generated or used by the company’s primary business activities, such as sales of goods or services, payment of suppliers, wages, and taxes. Positive cash flow from operations indicates that the company is generating enough cash to cover its day-to-day expenses.

Investing Activities: Cash flow from investing activities involves cash transactions related to the purchase or sale of long-term assets such as property, equipment, or investments. Positive cash flow from investing activities may result from the sale of assets or investments, while negative cash flow may occur when the company invests in new assets or acquisitions.

Financing Activities: Cash flow from financing activities reflects cash transactions related to the company’s financing activities, such as issuing or repurchasing stock, borrowing or repaying loans, and paying dividends to shareholders. Positive cash flow from financing activities may indicate that the company is raising capital or reducing debt, while negative cash flow may result from debt repayments or dividend payments.

An Example of a Cashflow Statement:

Understanding cash flow is crucial for every business owner. It gives you a clear picture of your business’s health:

Positive cash flow: Your business is generating more cash than it spends. This is a good sign!
Negative cash flow: This may indicate a need to adjust your spending or find additional funding sources.

It’s time to take action… Now that you understand cash flow, why not create a simple cash flow statement for your business this month, or if you have one you can review it in more detail with your new understanding. It’s a valuable tool for financial planning and peace of mind!