Feb 192013

What is Cash Flow in businessWhat is Cash Flow is the third in a series of articles on Gross Profit. A cash flow spreadsheet gives you a budgeting tool to project and manage your business plans.

Cash flow is the life blood of your company. Just as blood sustains your body’s functions, so too does cash sustain the functions of your business. Without regular cash flow circulation your business will stagnate and whither.

Related Topics:
| What is Gross Profit? | Profit Margin Formula | How to Calculate ROI | What is ROI? | Return on Investment Formula | Cash Flow Management | What is Accounts Payable? | What is Accounts Receivable? | What is Bookkeeping? |

So how do you measure the health of your business? By looking to your Income Statement, you can get a month to month report. If your gross profit exceeds your monthly expenditures and long term obligations your business should be in good shape. But a healthy Income Statement doesn’t necessarily mean maximized business returns.

Cash Flow Spreadsheet

If you didn’t create a cash flow spreadsheet when you started your business, build or develop one now. An honest cash flow spreadsheet will show you where your money is going every month. It is a household budget for your business. The decisions you make about new product or market development; the budgets allocated to them, and the timing of their introduction, are all at your discretion. Without a cash flow spreadsheet, you’re just taking a best guess.

How to build a Cash Flow Spreadsheet

Across the x axis, enter the months of the year, leaving the first column open.

Down the first column, start with Cash on Hand – month open, followed by Cash Available, followed by Cash on Hand – month end. The next row, first column, put in Sales or Revenue. Then populate the rest of the rows in the column with all of your business expenses detailed. It is oftentimes helpful to include sub headings such as Cost of Material; Office Expenses, Insurance, Marketing, Research and Development, Payroll, Long Term Debt and so on.

In the last row, place Expenses. Then put a SUM calculation in that cell that adds all of your expenses.

Finally, populate each of the cells under each month with the revenues and expenditures appropriate to the row title. Enter your available cash in the current month’s Cash Available cell. Add Cash on Hand to Revenues in the Cash Available cell. Subtract Expenses from Cash Available in the Cash on Hand – month end cell. Carry forward Cash Available – month end cell to the next month’s Cash Available – month open cell, and continue for the remainder of the calendar year.

If you’re not certain of the instructions above it might be a good idea to look for a Cash Flow spreadsheet template that you can adopt. Microsoft’s Excel has cash flow templates as does Apple. Alternatively, you might consult your book keeper or your accountant and ask them to create one for your business.

Managing Cash Flow

The first step to managing your cash flow is to be realistic with your expected Revenues and detail your Expenses. Then you have a starting point for making decisions about your money and your priorities.

Deciding when to pay your vendors, how much to discount your products when you run sales, when to invest in extra inventory, and many other decisions are evident when you start experimenting in your cash flow spreadsheet. There are many strategies you can test; some of which will be reviewed in a subsequent article called Cash Flow Management.


The cash flow of your business is not unlike your family budget – albeit, typically a lot more involved. Where your Income Statement gives you a monthly snapshot of the Gross Profit and cash flow of your business, a cash flow spreadsheet gives you a tool with which to test strategies and manage your business decisions.

Keeping it updated, like your business plan, will keep you on top of your business.