To have a solid prediction of what your business’s cash situation will look like in the coming months, you need to put together a cash flow forecast. This is important for future planning so that you can make the right decisions for your company’s growth.
From a cash perspective, your cash flow forecast will tell you when it is safe to expand, add more employees, or purchase additional equipment.
The key to being able to read and use your cash flow forecast is understanding the positive and negative cash flows and how they impact your business. Understanding these two concepts and what they mean for your business will make your cash flow forecast a vital tool for business management.
What is positive cash Flow?
Positive cash flow means a company has more money moving into it than out of it or the receipt of more cash than was paid out. It means having to spend less than the amount of cash you received from your customers, new loans or investment, or sales of assets that you owned.
Having a positive cash flow means that you would not need to use the salaried income to cover expenses and therefore enables you to quickly expand your portfolio.
And as your cash flow is measured over fixed periods of time, typically a month, if you are cash flow positive for several months in a row, this means your business is accumulating cash and your bank account is growing over time.
What is negative cash flow?
Negative cash flow means a company has more money moving out of it than into it. It is the result of paying out more cash than receiving. An example of negative cash flow is a property that costs more money than you earn as rental income.
A business has negative cash flow when cash spending on expenses like payroll, marketing, rent, insurance, and other services is more than the cash coming in. Another cash spending that may lead to negative cash flow includes spending cash to purchase assets like inventory, vehicles, and property.
And when your business has negative cash flow, your bank accounts are being depleted over time and you will have less and less cash.
Do you want to reverse the trend of negative cash flow that you’ve been experiencing? We can help you! Call us at 410-952-6767 for a free consultation.