Help me wrap my head around the concept of cashflow.
June 7, 2010 6:07 PM Subscribe
I can't seem to wrap my head around the concept of cashflow, so where can I find a good tutorial/book on figuring out your cashflow?
I'm currently writing a business plan via Business Plan Pro, and I'm stuck on the cashflow section. So is there any good books/tutorials on the subject of cashflow?
I have basic accounting knowledge, but I'm unsure regarding few things like cash spending vs. bill payments, sales of long term assets, and so forth.
Thanks
I'm currently writing a business plan via Business Plan Pro, and I'm stuck on the cashflow section. So is there any good books/tutorials on the subject of cashflow?
I have basic accounting knowledge, but I'm unsure regarding few things like cash spending vs. bill payments, sales of long term assets, and so forth.
Thanks
Actually a quick view of Wikipedia's entry on the cash flow statement shows you a quick overview of its sections and which sources of cash are recorded where. See: http://en.wikipedia.org/wiki/Cash_flow_statement
posted by dfriedman at 6:20 PM on June 7, 2010
posted by dfriedman at 6:20 PM on June 7, 2010
Cash flow (as I understand it) is the "nuts and bolts" of running a business, versus the higher abstraction of profitability and long term business plans and whatnot.
It is literally managing the business so that you have money in the checking account when it comes time to pay the bills. How the terms you extend to your customers relates to the terms you get from your suppliers.
If you have ever had a mortgage, the escrow account portion is a good, simple example of how cashflow is managed.
Cashflow realities mean that you might not be able to operate at the highest level of profitability if you need money in the bank now. It is taking a $50,000 a year job that pays every week versus a $75,000 a year job that doesn't pay until the year is up. The extra $25,000 would be nice, but you gotta eat. You manage the cash on hand so that it does the most good.
posted by gjc at 6:34 PM on June 7, 2010
It is literally managing the business so that you have money in the checking account when it comes time to pay the bills. How the terms you extend to your customers relates to the terms you get from your suppliers.
If you have ever had a mortgage, the escrow account portion is a good, simple example of how cashflow is managed.
Cashflow realities mean that you might not be able to operate at the highest level of profitability if you need money in the bank now. It is taking a $50,000 a year job that pays every week versus a $75,000 a year job that doesn't pay until the year is up. The extra $25,000 would be nice, but you gotta eat. You manage the cash on hand so that it does the most good.
posted by gjc at 6:34 PM on June 7, 2010
Best answer: I'm a business plan writer (not an accountant, though, just as a disclaimer. Our accountants thoroughly check our plans' financials, but I am in charge of making sense of a business' sales, profits and cash flow while I'm writing a plan), so here are some typical rules about cash flow that we follow:
-- cash flow should always carry between 2 and 4X the core expenses of the business on a monthly basis
-- in BP Pro, the Net Cash Flow line can be negative, particularly in a month with larger-than-average expenditures
-- however, in BP Pro, the Cash Balance line should never be negative, or else you're not able to pay your bills!
-- any long-term loans you're paying back (start-up capital, etc.) should be accounted for in the Long-term Liabilities Principal Repayment line
I hope this helps a bit! Feel free to MeFi mail me if you have any other questions. Good luck with your plan writing!
posted by blake137 at 9:48 AM on June 8, 2010 [1 favorite]
-- cash flow should always carry between 2 and 4X the core expenses of the business on a monthly basis
-- in BP Pro, the Net Cash Flow line can be negative, particularly in a month with larger-than-average expenditures
-- however, in BP Pro, the Cash Balance line should never be negative, or else you're not able to pay your bills!
-- any long-term loans you're paying back (start-up capital, etc.) should be accounted for in the Long-term Liabilities Principal Repayment line
I hope this helps a bit! Feel free to MeFi mail me if you have any other questions. Good luck with your plan writing!
posted by blake137 at 9:48 AM on June 8, 2010 [1 favorite]
This thread is closed to new comments.
For accrual accounting, the cash flow statement is comprised of three sections: cashflow from operations, cash flow from investing, and cash flow from financing.
Google "cash flow statement" for more detail.
posted by dfriedman at 6:17 PM on June 7, 2010