We helped Ruthin Castle Hotel use the value of their commercial property to secure finance

Cash flow

Cash flow is the movement of money through your business. It’s made up of the income, outgoings and existing cash in the business, and doesn’t include assets or investments your business might have.

Businesses usually work out their monthly cash flow then roll that figure over each month to keep track of the financial health of their business.

How to calculate cash flow

To work out your business’s net cash flow, add up your incomings and cash to work out your total cash balance. This includes your bank balance and your business’s income, for example from outstanding invoices.

Then add up your expected outgoings (wages, rent, maintenance payments etc.). Then take away your total outgoings from your total cash balance to work out your net cash flow.

(Cash + Income) - Expenditure = Cash Flow

What is a cash flow forecast?

Calculating cash flow is a good way to track your business’s finances, but you can also use cash flow to predict how much money you’ll need.

A cash flow forecast will give you an idea of how much money your business will have in the future and will give you the opportunity to plan for any expected peaks or dips in business. It’ll also help you budget effectively for any new stock, equipment or employees.

It’s also useful to compare your cash flow forecast with your actual cash flow. This will help you understand if your business is meeting its financial expectations and indicate if there are any parts of your business which need some rethinking.

What is a cash flow statement?

A cash flow statement is a snapshot of how money moves through your business. It’s sometimes called a statement of cash flows and it’s a document which summarises the key details from your cash flow.

Publicly trading companies are required to make a cash flow statement as part of their quarterly financial report. Although other businesses have no obligation to create a cash flow statement, it’s a really useful document to have and can help with managing cashflow.

Banks and investors might want to see your cash flow statement when they’re looking into whether they’ll invest in the business. A cash flow statement is essentially a tidier version of your full cash flow report — a version you’d be happy to show other people.

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