Bi-directional arrow

What is Cash Flow?

by OnDeck Australia,   Oct 10, 2022

What is Cash Flow?

Understanding cash flow projections for your business and having a clear cash flow statement is essential for all business owners. Simply put, cash flow is the movement of cash into and out of your business. A cash flow projection predicts the cash you expect to receive and payout over a period of time, so you can plan for surpluses or deficits. A cash flow statement tracks the cash coming in and going out of your business over time, giving you a clear understanding of the financial health of your business.

Definition of cash flow

Cash flow is the movement of cash in and out of a business. It’s calculated by subtracting cash expenses from cash inflows. A positive cash flow means the company has more cash than it owes, while a negative cash flow means the company has less cash than it owes.

Cash flow is usually important in the context of liquidity, how easily those expenses and inflows can be turned into cash for your business.

What does cash flow do for a business?

Cash flow is the movement of cash and cash equivalents in and out of a business. It’s used to measure a company’s liquidity, or how easily it can meet its short-term financial obligations. 

Businesses have two tools at their disposal to show operating cash flows: cash flow statements to review past data and cash flow forecasts to predict future flow.

A cash flow statement shows how much cash a company has generated and used during a specific period, letting you see your business’s history.

A cash flow forecast predicts how much money your business will have in the future when accounting for upcoming bills and payments.

What affects cash flow

Cash flow is the lifeblood of any business. Positive cash flow keeps a company afloat and is essential for long-term success. But what affects cash flow? Several factors can impact a company’s cash flow, some of which are within a business’ control, while others are not. Knowing these is the first step to efficient cash flow management, so let’s take a closer look at some of the most impactful ones: 

  1. The level of sales or revenue generated by the business: This one is pretty obvious – if you don’t sell anything, you won’t have any cash coming in. This is why it’s crucial for businesses to have a solid sales strategy in place. 
  2. The cost of goods sold: This measures how much it costs a company to produce the products or services it sells. If costs go up but revenue stays the same, profits will go down, and cash flow will be affected. 
  3. The amount of money spent on operating expenses: These are all the day-to-day costs associated with running a business – things like rent, salaries, marketing expenses, etc. If operating expenses exceed revenue, cash flow will suffer. 
  4. Debt payments: When businesses borrow money from lenders, they’re typically required to make regular payments (known as debt service) to repay the loan. Cash paid here can take a big chunk out of cash flow, so it’s important to manage them carefully. 

Importance of cash flow

A cash flow statement is like a financial report card, telling you how well a company is doing from month to month. It shows how much cash came into the business, how much was spent, and what was left over. This information can help us make informed decisions about whether to invest in a company while giving business owners vital data on the best way to manage their business moving forward.

Cash flow statement definition

A cash flow statement is a financial statement that provides a cash flow analysis of how money has moved in and out of a business over a period of time. The cash flow statement shows the net cash generated by a company’s operations, investing activities, and financing activities.

It basically serves to clarify whether the business’s net income is positive or negative and whether you have made or lost any money over a period of time. This can be compared to statements from previous periods and used to inform strategies in a cash flow forecast to improve revenue.

Parts of a cash flow statement

The typical cash flow statement has three parts: cash from operations, cash from investments, and cash from financing. 


The first part, cash received from operations, makes up the bulk of the cash flow statement because it shows how much money the company generates from its normal business activities. This section includes revenue from sales, minus the cost of goods sold, plus any other operating expenses. Together, these make up the bulk of your net cash flow.

The second part, cash received from investments, includes cash generated from selling investments such as stocks or bonds. 

The third part, cash received from financing, includes cash raised by borrowing money or issuing stock. This section also includes payments made to repay loans or dividends paid to shareholders.


In the end, you want all these cash inflows and cash outflows to be net positive, meaning the business is making money. A net negative cash flow is an unhealthy sign for a business, but there are steps that can be taken to help, and a business loan can provide a significant short-term cash balance boost to kickstart new processes.

Why cash flow statements matter

The cash flow statement is a report that shows how well you can meet your financial obligations. These documents might assist you in creating budgets and troubleshooting cash flow issues. They’re also useful for potential investors since they show how successful your company may be at generating money.

Cash Flow FAQs

What is an example of a cash flow? 

An example would be the cash inflows and outflows from a business over the course of a fiscal year. This would include income from sales and cash expenses such as wages and rent.

What are the 3 types of cash flows?

There are three sources of cash flow: cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities. It’s essential to track each revenue stream separately in order to understand a company’s overall financial health.

How do you calculate cash flow?

Cash flows are calculated by totalling all cash inflows and outflows over a given period. This can be done for a month, quarter, or year. It’s crucial to track cash inflows and outflows separately rather than as a bulk figure to get a clear picture of a company’s financial health and find the most profitable sales and biggest drains.


Prepared by OnDeck Capital Australia Pty Ltd ABN 28 603 753 215 (“OnDeck”) for general information purposes only. Content may belong to or have originated from third parties and OnDeck takes no responsibility for the accuracy, validity, reliability or completeness of any information. Information current as at October 2022. You should not rely upon the material or information as a basis for making any business, financial or any other decisions. Loans issued in Australia are subject to the terms of a loan agreement issued by OnDeck. Loans are subject to lender approval. OnDeck® is a Registered Trademark. All rights reserved.

Get Started