Cash-flow / Cash-flow statement

Cash flow is the flow of money, showing what income and expenses are generated in a business. Accurate forecasting and estimation of these helps us navigate when and how much money we will have. Will there be enough to pay for, for example, a future expenditure.

Cash flow literally means the flow of money. The cash flow statement shows a company's income and expenses in parallel. This is usually presented for a specific period, typically one year. The reason for this is that the cash flow plan is part of the financial plan, which is usually prepared broken down into years. 

Cash flow is important because it shows when and how much money is available within the company. This can also be entered for the present, that is, we know how much money our company has right now. Even more important, however, is that with the help of cash flow, it is possible to predict whether we will be able to pay an expected larger expense next month or next year. Will, for example, enough money come in from a previous business to cover that amount. 

With the help of cash flow, we can see when and how much money we will have in addition to our predictable income and expenses. And if it doesn't happen, then we have to take care of additional financing just in case. 

With the help of this, it is possible to estimate, for example, how long the startup capital of our newly founded company is sufficient. Of course, our estimate will only be good if we accurately plan expenses and income. You can be wrong about this, and life doesn't always turn out the way we imagine. So it doesn't hurt to include some reserves in the system, instead of relying solely on our cash flow table. 

The cash flow is also a simple but reliable fever gauge in the company, as it helps to clearly see the points that indicate the weakness of a business. If, for example, looking at the cash flow, we see that we will not have the money for an expense when it is due, there is not necessarily a problem. In this case, funds can be involved. A simpler solution for this, aimed at improving liquidity, is for example factoring, but of course a loan can also be considered. 

If we can easily and reasonably raise such funds from time to time to cover variable costs and pay them back later, then there is no problem. However, if there is not enough coverage for fixed costs in the cash flow, and if this happens regularly, then we know that something is wrong. If, for example, external funds must be drawn on regularly on salary payment day or the transfer of payments must be postponed, then the cash flow indicates more clearly that there are problems with the business.