cash flow – the total amount of money being transferred into and out of a business

(Pronounced cash flow)

To remember what cash flow means use the following mnemonic:

Rivers of cash flow (cash flow) money in and out of the business. 

When a customer buys something from you, money goes into your bank account. When you pay a wholesaler for goods for your shop, money goes out of your bank account.

Most businesses want to expand. If you want to move from a small shop to a bigger shop, you might foresee a cash flow problem. You will have two rents to pay out each month while you move and then you may have to spend a lot of money refurbishing the new shop. This could include re-wiring, more shop fittings, and more stock.

The company is profitable but where will this extra money come from? Is there enough cash in the bank to pay for the move when the cash flows out?

If you go ahead with the move, it would be best to work out when all the bills need to be paid against how much money you have in the bank and your monthly profit. This is called a cash flow forecast and it will tell you if you have enough money to pay for the move.

So, you might be profitable, but you may not be able to move because you haven’t got enough to pay for all the bills due to cash flow difficulties.