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What is cash flow?

As a business owner, you might hear about cash flow and how important this is for your business. But what exactly is cash flow, and why do you need to know about it?

Put simply, cash flow is the amount of cash going in and out of your business.

Cash going into your business includes:

  • Cash sales - which includes credit card payments
  • Accounts receivable - people/companies you sent an invoice, to pay you in the future. Also known as debtors
  • Other income such as interest, dividends, subsidies or grants.


Cash going out of your business includes:

  • Expenses such as rent, electricity, accounting fees, taxes, super and other day-to-day expenses
  • Accounts payable also known as your suppliers or creditors
  • Salaries and wages
  • Long term debt repayments (including both principal and interest repayments).


The cash going into your business less the money going out of your business equals your cash flow position. Your cash flow position can be one of three:


  1. Positive – if you consistently have positive cash flow, you can spend, invest or save your cash
  2. Neutral – you have an even amount of cash coming in and going out however, your ability to spend on additional expenses, save or invest is limited
  3. Negative – in this situation you’ll need to find cash to cover this gap in your business. You can put in your own money, find new equity from investors or borrow money.


Ideally, you want to plan for positive cash flow for your business so can grow your business and plan ahead for times when your business might experience negative cash flow.


Read more

Options to cover cash shortfalls

It’s easy to plan for positive flows, but unexpected expenses when income slows should also be considered.

Understanding the working capital cycle

Understanding and managing your working capital cycle is the key to a strong cash flow.

Planning for positive cash flow

Here are five strategies to consider when planning how to deal with the ups and downs of cash flow.

Things you should know

This information does not take into account your personal circumstances and is general. It is an overview only and should not be considered a comprehensive statement on any matter or relied upon. Consider obtaining personalised advice from a professional financial adviser and your accountant before making any financial decisions in relation to the matters discussed in this document, including when considering the finance options for your business.