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Cash Inflows

What is cash flow?

Cash flows are the lifeblood of any business. They represent the income coming into the organization and the operating expenses it needs to cover. If you want to know how much money your company makes in a certain time period, you need to track both cash inflows and outflows.

The difference between what goes in and what comes out is called cash flow. This is one of the most important financial metrics because it tells us whether a company is making enough money with its current assets to pay its bills and keep its doors open.

If an organization generates more money than it spends, then it has a positive cash flow. Whereas if a company loses more cash than its revenue, then that means it is experiencing negative cash flow.

There are four main categories of cash flows in a business: incoming cash, outgoing cash, capital expenditures, and depreciation/amortization.

  • Incoming cash: money received from customers, suppliers, investors, etc., that is brought into your business.
  • Outgoing cash: money spent by your organization. Examples include payroll, rent, utilities, advertising, marketing, inventory purchases, employee benefits, etc.
  • Capital expenditures: money spent by your business to purchase equipment, buildings, vehicles, land, etc.
  • Depreciation/Amortization: business expenses incurred by your company that reduce the value of assets such as property, machinery, office furniture, computers, etc.

If you want to run a profitable company, you must learn to recognize cash inflows and cash outflows. Understanding the difference between cash inflow versus cash outflow will help you identify opportunities to improve your financial performance.

Cash inflow definition

Cash inflows are the amounts of cash coming into a business as a result of its activities. The amount of money coming in is recorded within the cash flow statements and it may be a result of the sale of assets, business investments, or financing. The opposite of cash inflow is cash outflow, which are the operating expenses incurred by running a business.

Cash inflows set a rate of business growth. This means that a business is considered healthy if it has a positive cash flow. If the cash inflow is greater than the cash outflow, the business is growing.

What are the key elements that translate to cash inflow?

The main elements generating cash inflow and adding to the overall cash balance growth of a business include:

  • Financial activities carried out during a period of time
  • Sales of goods or services
  • Returns on investments
  • Interest built over time 
  • Reduction of sources of negative cash flow

What can affect a business’s cash flow statement?

Remember, cash in queen. Below are several factors that impact a business’s financial statement of cash flows:

  • Accounts receivable (AR): overdue payments can slow the money coming into your company, which can have a negative impact on your cash flow and income statement.
  • Accounts payable (AP): paying vendors on time is key to creating a smooth cash flow statement in which to track your actual cash flow. This, at the same time, will help create good relationships and increase the possibilities of negotiating better buying terms in the future.
  • Headcountpeople are the highest cost for any business. As your company scales, it is essential to plan for payroll to maintain efficient cash management and anticipate future cash outflows.
  • Cost of revenue: investing in Sales and Marketing is crucial to hitting revenue objectives. Thus, how much money you decide to spend on ads in the short term will directly impact your business cash flows. However, you must also forecast longer-term projections in your cash flow analysis, as those initial cash transactions for ads will hopefully turn into future cash inflows.
  • Product pricing: you should ensure you price your products and services toward optimizing your cash flow statement. If your prices are lower than they should be, you may not have enough cash inflow to support your business performance.

Further reading

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