Cashflow: How It Affects Business Growth

Cash determines the future of a small business. It is essential for start-up businesses to keep going and overcome challenges. However, many small business owners make mistakes in handling cash. Remember that the status of cashflow analysis can greatly affect the daily operation of your business and the approval of receiving a loan.

Cashflow includes the inflow of money from sales, assets, line of credits and loans, and outflow from loan payments, business expenditures and business purchases. In other words, cashflow is the moving in and out of money in your business.

It is very essential to keep it balanced. A proficient cashflow system will help you handle your funds to efficiently monitor expenses and profits to predict the problems that may arise.

Income statements and Profit & Loss statements provide projections of your business’ cashflow. However, cashflow statement has vital purpose – it provides details of expenses and non-cash items to balance profit figures. It does not only present changes but also accessible cash net.

The cashflow statement has three fundamental areas:

  1. Investment activities – this area accounts for the outflow and inflow from the purchases and investments of the company. If you are running an auto shop, purchasing equipment is considered outflow of money but as an investment as well. Once you sold the equipment, there is inflow of cash.


  1. Financing activities – this area presents the cashflow that you need in financing your enterprise. If your loan is approved, there is inflow of money but once you pay for it as agreed, then there is outflow.


  1.  Operating activities – this area shows the loss and net income from the operations of the company. By collecting the data both from purchases and expenses, net figure is determined.

Cashflow statement provides predictions for the stability of your business. Through this, you can easily manage your finances and save your business from spending too much.