A healthy cash flow is an essential part of any successful business. Face it – if you fail to have enough cash to pay your suppliers, creditors, or your employees, you’re out of business! No doubt about it, proper understanding and management of your cash flow is a very important step in making your business successful. Despite what some may think, there’s more to it than just a fancy term for the movement of money into, and out of, your business checking account.

Inflows – Inflows are the movement of money into your cash flow. Inflows are most likely from the sale of your goods or services to your customers. If you extend credit to your customers and allow them to charge the sale of the goods or services to their account, then an inflow occurs as you collect on the customers’ accounts.

Outflows – Outflows are the movement of money out of your business. Outflows are generally the result of paying expenses. If your business involves reselling goods, then your largest outflow is most likely to be for the purchase of retail inventory. Purchasing fixed assets, paying back loans, and paying accounts payable are also cash outflows.

Cash flow is typically measured by analyzing the amounts of cash received versus the amount of cash paid out. The report most often used to look at where your cash comes from and find out where it’s going is called the “Statement of Changes in Cash Position (or “Statement of Cash Flows”).

If all is well, you will not be agonizing over the fact that the outflows are larger than the inflows!

For more information, contact your Bothell Accountant at Padgett Business Services in Bothell, Washington at (425) 408-1695. We handle your bookkeeping, accounting, personal tax preparation & business tax preparation, and payroll needs – so you can focus on what makes you money. Serving Bothell, Lynnwood, Kirkland, Kenmore, Mill Creek and surrounding areas.