Keep in mind that cash outflow for interest payments is recorded as an operating activity, not financing on a balance sheet. Cash outflows refer to dividend payments and the funds used for principal repayment the principal amount on existing debt. In the financing category, cash inflow includes the amount of money that you borrow and income generated by selling stock or equity. Financing Activitiesįinally, you have cash flow from financing activities, which includes funding rounds, loans, stock sales, dividends, and long-term debt payments. Growing businesses are more likely to invest in long-term assets that support business growth. In many cases, it’s common to see more outflow than inflow in the investing category. If you sell a long-term asset, such as a piece of equipment, then that generates cash inflow.

In other words, a certain amount of cash is leaving your business in exchange for the investment. The purchase of any investment counts as cash outflow. You can have short-term investments, such as the purchase of marketable securities, or long-term ones like buying new equipment or buildings. Investing ActivitiesĬash flow from investing activities includes the movement of money associated with your company’s investments.

Inflow from operating activities includes the net income you generate from the sale of goods/products and services, inventory, and accounts receivable.Ĭonversely, outflow refers to the day-to-day costs associated with your business, such as the cost of production, rent, sales and marketing, income tax, and wages paid to employees.

Your company’s cash flow results from three types of activities, each of which can break out into both inflows and outflows:Ĭash flow from operating activities refers to cash entering or leaving your business as part of your regular business activities, namely the creation and sale of your products and services. What you really want is deep insight into the breakdown of cash inflows and outflows so you can continuously improve efficiency and map out more strategic growth plans. That’s why a high-level view of cash inflows and outflows isn’t enough. For growth-at-all-costs startups, this is often the norm. Negative cash flow, in contrast, means that you’re spending more money than you’re taking in. This is crucial for mature VC-backed startups and public companies that have to show they can run efficiently while still growing. If you have positive cash flow, this is a good indicator that you have enough cash to invest in business growth and pay shareholders without taking on excessive debt. Conversely, negative cash flow means you have more outflow than inflow. When you have more cash entering your business than leaving it, this is known as positive cash flow. To build a business that can profit in the long term, you need to know that your inflows will ultimately exceed outflow. Why Are Cash Inflow and Outflow Important?Ĭash inflow and outflow represent your business’s fundamental financial position.īecause cash is the lifeblood of any business, understanding your cash inflows and outflows is critical to optimizing the day-to-day operations of an organization. Conversely, cash outflow can consist of your operating expenses, debts, and other liabilities. Cash Inflow and Outflow ExamplesĮxamples of cash inflow include money earned from selling products and returns on any investments. This is an indispensable metric for benchmarking the health of the business - especially when you cut it into more granular categories like operating costs, investments, and debt. It’s the opposite of cash outflow, which is the money leaving the business.Ī company’s ability to create value for shareholders is determined by its ability to generate positive cash flows. Cash inflow is the money going into a business which could be from sales, investments, or financing. This metric provides a quick view of both cash inflows and outflows. What Is the Difference Between Cash Inflow and Cash Outflow?

Cash flow finance definition