Cash Flow
Definition
Cash flow is the net movement of money into and out of a business over a specific period. Positive cash flow means more money is coming in than going out, while negative cash flow indicates spending exceeds income. It is distinct from profit because it accounts for timing of actual payments.
Overview
Cash flow measures real money movement, not accounting profits. A company can be profitable on paper while running out of cash if customers pay on 90-day terms but bills are due in 30 days. This timing mismatch is why cash flow management is critical for startup survival.
Cash flow is reported in three categories: operating (day-to-day business), investing (asset purchases, acquisitions), and financing (loans, equity raises). For startups, operating cash flow is the most important because it reveals whether the core business generates or consumes cash.
Founders should track weekly cash flow, not just monthly. Payroll, tax payments, and annual subscriptions can create significant cash flow spikes that a monthly view obscures. A 13-week cash flow forecast is a standard tool that gives enough granularity to anticipate and manage short-term cash crunches.
Example
A startup collects $80K from customers but pays $65K in salaries, $10K in rent, and $15K to vendors. Net cash flow = $80K − $90K = −$10K for the month.
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