Business Briefing: Healthy cash flow is the lifeblood of your business


Get a better understanding of your business finances by understanding the difference between cash flow and revenue. (Plus, get a bonus tip on how to leverage credit cards to improve cash flow!)

Far too many business owners find themselves broke despite having a booming business. Why? Because they confuse revenue with cash flow. Let’s take a look at the difference.

Identify revenue

Revenue is how much money comes in. For most startups, this will be from operations in the form of sales of goods and services. Revenue could also include income from investing and financing. For this article, we’ll just stick to sales.

Let’s say a business owner named Emily sells 10,000 T-shirts each month at $10 each. If all her customers pay cash, her monthly revenue is $100,000. That’s a healthy number, but it’s not the only number Emily needs to be concerned with.

How to calculate cash position

Business owners get into trouble when they mistake revenue for available cash. Calculating your cash position at the end of the month is straightforward: You add your cash inflows and subtract the cash outflows.

The calculation on a direct method* cash flow statement looks like this:

Start with your opening cash balance

+ Cash inflow

– Cash outflow

= Your new cash balance on the closing date


Emily’s cash flow report might look like this:

Opening cash balance            $10,000

Cash inflow                           + $100,000

Cash outflow                        –    $75,000

Closing cash balance              $35,000

If Emily does some sales on credit, her accounts receivable will go up and her cash inflow and closing cash balance will go down.

Another thing to note is that a closing cash balance does not equal profit. The closing cash balance is simply how much cash is in the bank/credit union. Some business owners trip up financially by ignoring cash flow. If customers are slow or late in paying, that diminishes cash flow and makes it hard to pay expenses – like payroll or supplier invoices.

Another mistake is to look at rising sales without minding cash flow. Businesses that borrow money to keep growing sales raise their debt cost. If severe enough, poor cash flow coupled with debt could cause an otherwise viable business to fail.

You have the ability to run a cash flow statement if you’re using accounting software like Quickbooks or Sage 50 (formerly Peachtree). If you’ve never run a cash report, try it out to gain a better understanding of your business finances.

Running a cash report on a daily, weekly or even monthly basis lets you see exactly how much money is coming in (or not) and going out, and helps you manage your business better.

Bonus tip: Leverage your credit card to improve cash flow

Strategic use of your Consumers Business Rewards Mastercard® can improve your cash flow and working capital (the amount of money available for day-to-day operations).

Depending on where you are in your billing cycle, you can delay paying for purchases for up to 58 days when you make credit card purchases. As long as you pay the balance in full by the due date, you pay no interest. (Interest does apply to cash advances.) This means you keep cash in your deposit account longer and make it work harder for you.

Many business members use their Consumers credit cards to pay for supplies, travel, entertainment and vendor invoices. In addition to delaying payment without incurring interest, they keep more cash on hand and earn rewards.

*There is a second way to prepare cash flow statement called the indirect method that accounts for depreciation of assets.

Do you have questions about cash flow or leveraging credit cards? Contact our knowledgeable business development managers or call 800-991-2221. We’re here to help you grow your business!

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