accounting
Cash Flow
Cash flow is the net movement of cash into and out of a business over a period, positive when inflows exceed outflows, negative when the reverse.
Definition
What it means.
Cash flow is the most important single metric for any business seeking short-term funding. A business can be profitable on paper and still run out of cash, typically because of timing mismatches between when it pays expenses (immediately) and when it collects revenue (net-30, net-60, or seasonal).
Underwriters look at operating cash flow, the cash generated by core business activity, excluding financing and investment, as the truest measure of repayment capacity. A business with strong operating cash flow and weak accounting profit (due to depreciation, interest expense, or owner add-backs) is often a better credit risk than the income statement suggests.
Example
A contractor invoices $200K in Q1 but collects only $120K in Q1 (the rest arrives in Q2). Operating expenses in Q1 are $150K. Cash flow for Q1 is −$30K, even though the business is profitable on an accrual basis.
Now what?
Get an offer that accounts for cash flow.
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