cash flow

Input of cash required to cover all expenses of a business, whether revenue or capital. Alternatively, the actual or prospective balance between the various outgoing and incoming movements which are designated in total. Cash flow is positive if receipts are greater than payments; or negative if payments are greater than receipts. Money may be received through cash sales of products or assets, and receipts of debts. Money may flow out through purchase of raw materials, the settlement of debts, and the payment of salaries.

A ‘cash flow forecast’ is one of the most important forms of financial planning for any business. The business needs to know if monthly outgoings are going to be greater than receipts. If it does not have finance, such as bank deposits or an overdraft facility, to cover a period of negative cash flow, the company will go bankrupt even if the business is fundamentally profitable in the long term.