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Cash flow Q & A

Cash flow Q & A

To what does cash flow in the business refer?

Business cash flow is the net balance of cash that, at a specific time, moves into and out of business.

What is a cash flow budget?

Often referred to as a cash flow statement, the cash flow budget outlines the details of a business or company’s cash flow over a specific period, known as the accounting period. It highlights the operational abilities of the business based on sufficient cash incomes and expenditures and gives insight into how to budget accordingly.

Why is a cash flow budget necessary?

The main objective of a cash flow budget is to determine if a company has enough cash to uphold regular business operations and to determine if the cash expenditure is unproductive. In turn, it will tell the owner of its sustainability towards creating generational wealth and if there are means for further developments and expansion.

What do cash flow budgets comprise?

The detailed cash budget and plans for future cash flows compose of the following:

  1. Cash receipts, cash disbursements or cash outflows.
  2. The net change in cash for the accounting period.
  3. The needed new or external financing.

Are there different types of cash flows?

Three types of cash flows for three sections reflect the cash flow statement. These are:

  1. Operating cash flow for operating activities such as delivering goods or services, including revenue and expenses. This cash flow should customarily top the business’ net income to be solvent and ensure growth.
  2. Investing cash flow for investing activities like buying or selling physical assets such as vehicles and property or non-physical assets such as patents using spare cash and not going into debt.
  3. Financing cash flow for financing activities such as equity repayments, debt repayment, capital lease obligations etc.

The cash flow budget or statement indicates the amount of cash generated from the different activities, which calls for analysis of the financial statements and business decisions to be made accordingly.

Contact PRNC for assistance with information relating to cash flow alongside the available options for a business health analysis.

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