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How to calculate your total cash flow

Successful businesses have a full picture at all times of cash coming in and going out. An accurate snapshot allows companies to make wise spending and budgeting decisions. With a good cash flow calculator, businesses can save enough for future expenses, both expected and unexpected, and have more than enough funds to cover operating costs in the present quarter and beyond.

New businesses that establish an effective method of cash flow calculation upfront stand a much better chance of strong financial health in the short and long term.

Why you should know how to calculate total cash flow

Effective cash flow calculations help a business operate within its budget, work effectively, plan for resources, predict future expenses, and make realistic budget allocations for the next quarter and year.

Without an effective calculation method, it’s too easy for operating units to overspend, purchase items or services that aren’t needed, or spend well under budget. And when it comes time to planning next year’s budget, financial mismanagement in the previous year could mean less money to spend next year.

Businesses that know how to calculate cash flow are better able to manage accurate on-time spending and allocate resources. Ideally, total cash flow calculations should happen both in real-time and at regular intervals and reflect all areas and transactions of the business. 

Cash flow projections meeting
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What is cash flow?

In simple terms, business cash flow is money coming in minus money going out. Cash might come in from customer purchase of products and services, as well as funds from financial grants or outside investors. 

Outgoing funds usually go towards a longer list of items, such as employee wages and benefits, facilities overhead, office equipment, utilities, insurance, product materials, vendors, and employee training, as well as unexpected expenses like legal fees, profit shortfalls during a downturn, and rehiring.

Using the cash flow statement

There are different methods, platforms, and business cash flow calculators available. Here’s a look at a cash flow method that works well for businesses. You don’t need to be an accountant to use it effectively! Excel and Google spreadsheets have many complex features to make the job easier.

A cash flow statement measures a company’s ability to pay its debt obligations and operating expenses. It breaks down incoming and outgoing funds by operating expenses, investments, and financing, across a specific time frame. These items are subtracted from a business’s net income.

  • Net income – net cash flow – operating cash flow +/– investing fees +/– financing = Total cash flow

Employees working at a call center

Calculate net earings

When calculating business cash flow, net cash should account for any non-cash expenses, such as depreciation and gains or losses from sales of assets or from accounts receivable. This net cash flow calculation should factor the total losses into the net income, and subtract the total amount for expenses. 

Calculate operating cash flow

This figure includes any money the business needs to spend to operate, such as payroll, outstanding invoices, inventory maintenance, annual fees, and more. Here, you would subtract any expenses and add any surplus from expenses you expected would be higher.

Calculate investing fees

Businesses spend money to become more efficient, produce more, and work smarter. These expenses could include new software, modernized equipment, or office renovations. 

Any money you spend on an investment to improve your business should be subtracted from the net income. Any gains from the sale of equipment, space, or permanent loss of a position, should be added back into the net income when calculating your total cash flow. 

Calculate financial activities

Financing activities include money that is owed, such as business loans, dividends, or stockholder payments, and equities. These should also be subtracted from the expenses side of the total business cash flow. Capital raising gains financing received from a bond would be a cash-in situation.

Businesspeople with financing spreadsheets
Image used with permission by copyright holder

Using a cash flow forecast

It’s essential to use a total cash flow statement, as outlined above, but supplementing it with a forecast allows businesses to look ahead and predict how much they will need to spend to operate and profit in the future. 

A forecast usually happens quarterly, and yearly. With this data in hand and looking at past expenses, businesses can make better decisions about future investments, hiring, and future business plans. 

  • Beginning cash + projected inflows – projected outflows = ending cash

With the cash flow forecast, the current balance is added to the predicted cash inflows for the time frame, such as product sales, investments, or funding, then predicted cash outflow is subtracted, such as rent, loan payments, and vendors. 

These factors produce the predicted cash flow, a formula that produces more data to support accurate total business cash flow calculations throughout the year.

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Jennifer Lindahl
Former Digital Trends Contributor
Jennifer Lindahl is an experienced writer and editor with two decades of experience in journalism, public policy, and B2B…
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