Cash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time.
You should try to estimate your monthly cash flow at least 12 months in advance and update it monthly with the real figures. When there are significant differences between real and projected cash flow, try to figure out why, so that your future projections will be more accurate. Items to watch very carefully in your cash flow analysis are credit and accounts receivable (the money people owe you).
Be careful not to get too much of your working capital tied up in accounts receivable, since this can rapidly deplete your cash pool and the ability to pay your own creditors.
You can get pads of paper suitable for cash flow projections from office supply stores, or if you have access to a computer, there are financial programs available that will do cash flow projections, revenue and expense statements, balance sheets and more. To calculate your financial status at the end of each month, subtract total expenditures from total cash available. If the result is negative, you will have to come up with more cash to meet your expenses.
Negative ending positions are fairly typical in start-up businesses and in businesses that are growing rapidly. Plan for them by making sure you have enough cash in the bank to cover your expenses each month. That may require borrowing or attracting new permanent capital to your business. Established ventures with large seasonal variations often depend on a revolving line of credit or extended dating (payment due dates) to handle a temporary shortage of cash.
Most business experts agree that you should do your cash flow analysis and cash flow projection monthly. It forces you to be more realistic and disciplined in your thinking and keeps your attention focused on the bottom line.