Understanding What Cash Flow Is: A Comprehensive Guide with TGG

What Is a Cash Flow Statement?

A cash flow statement is a financial document that records the movement of cash in and out of a business over a specific period. Your statements should categorize cash flow into three main groups: operating, investing, and financing.

With a cash flow statement, stakeholders get a clear view of how your company manages its resources, building confidence and trust. In addition, monthly statements reveal your company’s ability to generate cash from its core operations and how you use your money to keep your business growing.

Cash Flow vs. Profit

Profit — also known as net income — is any earnings you have left over after all expenses are deducted from your total revenue. Cash flow, on the other hand, is the net balance of money that you actually receive or spend.

Why does the difference matter? It’s simple: even if you turn a considerable profit, you may face cash flow challenges if the majority of your revenues are not readily available in cash form. That’s why viewing profits as equivalent to cash flow is never wise as a business owner — or in any other aspect of your life.

How Are Cash Flows Different From Revenues?

Revenues are your total earnings from sales or services before deducting any expenses. Another way to describe revenue is as gross profit. Cash flow factors in your revenues, but there’s more to the story. Just like we saw with net income, you can report high revenues but still struggle with cash flow. To avoid this often serious error, make sure you pay close attention to the balance between your profits and expenses. Ultimately, revenue tells you the least about your company’s financial health; your cash flow speaks volumes.

Types of Cash Flow

Below are a few of the primary types of cash flow, including:

• Cash Flows From Operations
• Cash Flows From Investing
• Cash Flows From Financing

Cash Flows From Operations

This type reflects the cash generated from or used for your company’s  primary business activities. It’s a barometer of your business’s operational efficiency and its ability to turn profits into usable capital.

Cash Flows From Investing

This category includes all of your company’s long-term assets, such as the purchase or sale of equipment or property. Cash flow from investing indicates how well you use your business’s resources to scale.

Cash Flows From Financing

Anything that alters the equity and debt of your business falls into the financing category. These forms of cash flow include transactions like issuing shares or repaying loans. Financing cash flows tell you about the viability of your company’s financial strategy and how well you and your team maintain both capital structure and shareholder value.

What Is a Good Cash Flow?

For ideal cash flow, keep your net profits about your expenses. Sometimes referred to as being “in the green,” this status means your company generates sufficient cash to cover its operations, pay debts, and invest in future growth. A healthy cash flow also provides your business with the flexibility you need to ride out economic downturns and take advantage of market opportunities.

How TGG Can Help With Cash Flow

We specialize in helping companies in a variety of industries handle the complex world of financial management. With the resources you need for cash flow forecasting and management, Our team can create a pathway that leads your company to financial clarity and stability. Our services include:

• Detailed analysis and understanding of your cash flow landscape
• Customized strategies to enhance and optimize cash flow
• Expert assistance in crafting and interpreting cash flow statements
• Comprehensive guidance on operational, investment, and financing decisions to bolster cash flow

Partnering with TGG means more than just managing your finances. Teaming up with us is about unlocking your business’s full potential. Our expertise helps us turn financial challenges into your best opportunities for growth and profitability.