Cash flow: Know what it is, what it is for and how to do it

What is cash flow?

Cash flow is a financial control where all the  cash inflows and outflows of  the company are recorded during a specific time.

The importance of cash flow comes from your careful observation. Therefore, the manager can predict surpluses or shortages of money and can then make better decisions about spending and investments, better managing the business.

Generally supplied by accounting in spreadsheet format, the cash flow allows a correct adjustment of the capacity of payments and receipts. This indicates the days when more or less cash is available. Information can help:

  • When negotiating vendor pay days
  • In negotiation of reception by clients
  • When deciding when to invest in machinery
  • Deciding when to move inventory

This is one of the other financial activities of the business.

How to make a cash flow?

The control is carried out by someone who knows all the operations that involve cash inflows and outflows of the company, through an Excel table. It is recommended that monitoring be done daily.

The manager will first fill in the opening balance, that is, what is in the cash register when the flow begins.

Then it is completed with the entries, which represent everything that came in cash through the sales, what was paid by check, card, etc.

It is also necessary to include if there are investments of any kind that yield or any other receipt. All of these added values ​​will result in the total income.

Then, the outflows are recorded: taxes, supplier payments, pro-labore, salaries, infrastructure expenses, marketing, commissions, equipment purchases, etc. These form the total production.

Total inflow minus total exit value represents the company’s operating balance. In other words, it is a comparison between what goes in and what goes out to verify that there is no detrimental imbalance for the company in these two factors.

The beginning balance and the operating balance are subtracted to get the ending cash balance, which represents how much money the business actually has on hand. This amount is the initial cash flow balance for the next period.

Types of cash flow

  • Projected cash flow

It is the control of what the company has to receive or spend in the future. It follows the same scheme as daily cashier monitoring, but includes bills that still need to be paid, such as personnel, infrastructure expenses, and all amounts already provided. Similarly the recipes. Fixed customers, income, etc.

Projected cash flow helps entrepreneurs anticipate future needs. In addition to organizing the dates of receipts and payments, so that the cashier does not fluctuate a lot and is not unnecessarily discovered.

  • Free cash flow

Free Cash Flow shows the amount available in cash, considering investment needs and working capital. Therefore, not all capital is free, but what can be used without jeopardizing future operations.

The calculation includes expenses such as amortization, which is not a cash outflow, but represents a reduction in the amount available.

  • Operating cash flow

It is what the company generates money in a given period of its operations. Represents how much you bill with customers, regardless of investments or working capital needs.

  • Direct cash flow

In the direct cash flow method, gross income and payments from operating activities are considered for the financial statement. That is, without any discount.

  • Indirect cash flow

The indirect method of cash flow statement considers the values ​​of the adjusted net profit of the resources from the operation. This after discounting factors such as depreciation and amortization.

  • Discounted cash flow

Discounted cash flow, or FDC, as it is used more in accounting, is a way of calculating the value of a business through its cash flow.

It is used when a company is sold, merged, in the search for investors, as well as to evaluate the return time of the invested capital.

To evaluate the FDC, there must be a projection of the company’s cash flow in the coming periods and then calculate its total value for the present, using a discount rate.