Cash Flow

Cash Flow is the movement of money that goes in and out of a Business.
Cash Inflow is the money that goes in to a business, whereas Cash Outflow is money going out of a business.


You can predict your Cash Flow activities by making a Cash Flow Forecast, which is: something that enables you to predict peaks and troughs in your cash balance. It helps you to plan how much and when to borrow and how much available cash you're likely to have at a given time. Many banks require Cash Flow forecasts before considering a loan.
Business keep track of their Cash Flow by creating a Cash Flow Statement. A Cash Flow Statement is a historical record of the Cash Inflows and Outflows that have taken place over a period of time.
The difference between the two is that the Cash Flow Statement has actually happened and if a fact, whereas a Cash Flow  Forecast has not actually happened, although it has a chance to happen; unlike the Statement, it has not happened, therefore not true.


Businesses use Cash Flow to know their financial activities and to be able to manage their incomes and outcomes which effectively allows them to determine whether their business is on a profit or a loss; for example: If the Cash Outflow are greater than the Inflows, then the business would be failing. On top of all this, they can also identify and predict 
problems within their business.


Positive Cash Flow is a normal situation where the cash inflows during a period are higher than the cash outflows during the same period. Positive cash flow does not necessarily means profit and is usually due to a careful management of cash inflows and expenditure. Persistent and large positive cash flows may indicate the firm is not keeping enough stocks of raw materials or finished products, and might be losing sales due to shortages.


Negative Cash Flow is a situation where the cash outflows during a period are higher than the cash inflows during the same period. Negative cash flow does not necessarily means loss, and may be due only to a mismatch of expenditure and income. Chronic mismatch, however, may indicate ineffective credit management, leakage of funds through fraud, or actual loss. Temporary mismatch is covered usually by arranging an overdraft facility.