Cash Flow
Short answer
Cash flow is the movement of money in and out of a business. Positive cash flow means more money is coming in than going out; negative cash flow means the opposite.
Why it matters
A business can be profitable on a P&L and still run out of cash if customers pay slowly or large payments are due at once. Understanding cash flow helps an owner plan rather than react to surprises.
How it works
Cash flow is tracked by comparing cash coming in (customer payments, loans) with cash going out (bills, payroll, loan payments) over the same period. A cash flow statement organizes this into operating, investing, and financing activity.
A simple example
A business shows $5,500 profit on the P&L but has negative cash flow because $9,000 in customer invoices are still unpaid. The business is profitable but short on cash until those invoices are collected.
A common misunderstanding
Profit and cash flow are not the same thing. Profit is an accounting result; cash flow is about the actual timing of money moving in and out.
Related service
Monthly Bookkeeping
When you may want help
If you are profitable on paper but regularly short on cash, monthly bookkeeping with clear A/R and A/P tracking can reveal where the cash is tied up.
Written and reviewed by Rachel Armstrong, owner and bookkeeper at Armstrong Quality Financial Services. QuickBooks Online Level 1 ProAdvisor. This entry explains a general concept and is not individualized tax, legal, or investment advice.
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