Cash flow

What is cash flow?

Cash flow is the movement of money of a business, in terms of income and expenses, in a given period.

It’s the indicator that allows you to understand how your business is doing. With positive cash flow, you’ll be able to pay off your bills and invest in growth. On the contrary, with a negative cash flow, you will have to find an alternative source of income and review your expenses.

It is therefore essential to understand your cash flow, how to calculate it, and how to monitor it, in order to know the health of your company’s finances and whether you have the funds to pay taxes, suppliers and employees.

How to manage cash flow to avoid liquidity problems

No entrepreneur, freelancer, startup or company can afford to ignore their cash flow. In fact, cash flow measures the ability of a project to finance itself without having to go into debt. Not surprisingly, one of the main obstacles in the growth of many companies is represented precisely by problems arising from a lack of and/or incorrect money management.

It is therefore, to all intents and purposes, a tool for analyzing and controlling the performance of one’s own business, which it is necessary to interface with for tactical and strategic choices. In fact, the main functions of cash flow are two:

  • Historical function, or cash flow statement, which allows you to know exactly how much liquidity is available and allows you to use it optimally
  • Forecasting function, which allows you to estimate the financial situation of your company in advance, avoid liquidity crises and develop strategies based on the data

Start calculating the cash flow of your project

The first step in taking the reins of your business and monitoring performance is to calculate cash flow. How is it determined? You must subtract from the amount of all income the cost of all expenses in a given period, usually a year..

But be careful not to confuse cash flow with the profit or earnings of a business! The latter, in fact, is the result of the difference between revenues and costs, and does not take into account all the actual payments and receipts. A project may have a positive profit but not enough cash to sustain itself.

On the contrary, cash flow is the health indicator of your business because it takes into account all the actual movements of money. In this calculation, you must in fact include the different areas of your business that produce cash flow. We therefore distinguish:

  • Operational cash flow, determined by the company’s own activities
  • Investment cash flow, which includes all investments in other entrepreneurial initiatives which therefore generate a return
  • Financial cash flow, which includes all income and charges linked to the financing of the activity

Use cash flow analysis and management tools

Among the most popular and used tools to calculate and manage cash flow, we undoubtedly find Excel or Google Sheets. Thanks to the various features and formulas, you can not only calculate the cash flow but also make forecasts and draw graphs to get a clear view of the progress of your business.  

Unfortunately, however, the human factor can play tricks on you. An extra number, a comma in the wrong place, or an accidentally pressed button could generate serious errors. Besides, think about how much time you have to constantly spend to extract all the data you need from different accounts, tools, and platforms, and then manually aggregate it to your spreadsheet. For this reason, many entrepreneurs, businesses, professionals, and freelancers, choose to use tools that allow you to automate your cash flow calculations.

Dashero is the software for cash flow management, the tool that allows you to monitor the progress of all your projects and assets in one place, in real-time! By connecting via API to banks, wallets, and other service providers, Dashero allows you to finally have an overview of the progress of your business and keep everything under control, with reports and data always updated and in a single dashboard.

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