You’ve probably heard that cash flow is the lifeblood of a business. If that’s true, then how do you measure whether the cash flow in your business is healthy?
That’s where cash flow calculators can come in handy. Think of them as the blood pressure cuff for your business. They can help you track and analyze your business cash flow so you can make better financial decisions for your business.
What Does Cash Flow Mean In Business?
Cash flow measures the amount of money flowing in and out of a business at a specific point in time. When a business has strong cash flow, it usually means it’s bringing in enough revenue in a timely fashion to pay expenses. Monthly cash flow is often closely monitored by small business owners, but any measure of time can be used, including weekly or quarterly cash flow.
Business owners often use their business bank account as a proxy for cash flow, and it can be one of the most helpful tools for monitoring cash flow. In addition, though you’ll also want to anticipate expenses and other items that can impact your cash flow, and that’s where cash flow analysis is helpful.
The cash flow statement is a financial statement that compares cash received with cash paid out. Cash received includes revenue from sales as well as investment or interest income. Cash paid out can include inventory, taxes, payroll, loan payments, pensions etc.
Why Is Cash Flow Management Important
Good cash flow management allows your business to pay its bills on time and that can help your business establish good business credit and qualify for better payment terms from vendors.
Understanding cash flow can also be helpful when creating a budget for your business. Just like you need to budget personal expenses based on the funds you have available to pay them, your business needs to understand cash flow to make sure it has the money it needs to cover expenses. If it doesn’t, it will either need to get some type of small business financing or cut spending.
A business can be making plenty of sales and not have healthy cash flow. There are numerous reasons why this can happen.
First, sales don’t always mean immediate revenues. B2B businesses (those that sell to other businesses) in particular often get paid on net-terms such as net-15 or net-30. Waiting for payment on accounts receivable can create a cash flow crunch as the business may need that revenue to pay expenses in the meantime.
Unexpected expenses, supply chain disruptions and other unforeseen events can hurt cash flow and make it more difficult for a business to complete sales.
A business may have debt and loan payments that impact cash flow. This isn’t necessarily a bad thing; sometimes short-term business loans such as a line of credit or business credit card can be invaluable to helping a business successfully manage cash flow shortages. But payments can impact cash flow and need to be planned for.
Cash Flow Analysis Formula
There are several cash flow analysis formulas you may want to use to help evaluate the financial health of your business. Each one has its own purpose, and the calculators featured later in this article will help you with these calculations.
Net Cash Flow
Net Cash Flow = Total Cash Inflows – Total Cash Outlays
Very simply this formula measures the amount of cash the business has after it has paid expenses.
Operating Cash Flow Formula
Operating Cash Flow = Operating Income + Depreciation – Taxes + Change in Working Capital.
This formula measures how much money a business generates from its core business operations.
Free Cash Flow Formula
Free cash flow = Operating Cash flow – Capital Expenditures
This formula is often used to evaluate how much cash a business has available after expenses needed to run the business have been paid.
There are other cash flow formulas you may choose to explore, such as cash flow from financing activities or cash flow from investing activities, and some of the calculators listed below include these options.
Difference In Cash Flow And Profit
Cash flow doesn’t necessarily equal profits, though it’s easy to confuse the two. Profits are what’s left over after expenses have been paid. A business may have deferred expenses that don’t figure into the cash flow analysis at a given point in time. Or a business may be profitable but because of the timing of when revenue is received and expenses must be paid, the business may have negative cash flow.
Both profit and cash flow are important, but they aren’t necessarily the same.
How To Calculate Cash Flow Using Financial Calculators
To use cash flow calculators you’ll be asked to input key financial information such as cash receipts, and details about expenses. If you’ve kept up with your bookkeeping, you should have access to the information you need in your accounting software. Many accounting software programs allow you to run financial statements, including a statement of cash flows.
Your business checking account can also be an important source of insights into your business cash flow. Of course, that assumes you use it exclusively for business transactions. Running personal funds through your business account or vice versa will make it hard to sort out the information you need.
7 Best Cash Flow Calculators Across The Web
Here are 7 of the best business cash flow calculators available on the internet. And most of them are free. In addition to these calculators you may want to check out other business calculators to get a more comprehensive view of your business financials.
1. Crowdfunding platform EquityNet offers a cash flow calculator to help your business calculate operating cash flow, free cash flow, and cash liquidity balance over a three year period.
2. Accounting software service Wave offers a cash flow calculator that allows you to calculate three cash flow formulas: cash flow from operations, cash flow from investments and cash flow from financing.
3. The Cash Flow CEO Dashboard is designed for entrepreneurs and can help you evaluate key metrics in your business. You’ll need to provide your email address to get the free download.
5. To calculate free cash flow, try the Omni Calculator Free Cash Flow Calculator. While it is designed for investors to evaluate businesses, it may help you understand how an investor may view your business.
6. For business owners in the real estate industry, the Short Term Shop’s Short Term Rental Cash Flow calculator can be helpful for evaluating the cash flow of a short term rental property. This is important for helping investors look beyond rental income and understanding whether this type of investment makes sense.
7. Businesses willing and able to invest in more sophisticated tools may want to check out Highradius cash flow forecasting software. It’s used by CFOs to make better business decisions through accurate forecasting.
Monitor Your Cash Flow Like a Pro
If you want to stay on top of your business cash flow, but don’t have a lot of time to pour over financial statements, Nav can help. Nav’s new features in its Cash Flow Tool will help you monitor key metrics like projected monthly net income and month over month net income change. Nav’s Cash Flow Tool offers actionable insights that you can’t get elsewhere. Just sign up with Nav and connect your business checking account.