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Preparing a Cash Flow Analysis – Study of The Cash Inflows and Outflows of The Business

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What is the Meaning of Cash Flow in a Business?

Steps to Prepare a Cash Flow Analysis

Preparing: Cash flow analysis is simply the study of the cash inflows and outflows of the business. It examines various components of cash flow such as accounts receivable, accounts payable, inventory and credit terms. The main purpose of maintaining a cash flow is to maintain adequate cash flow into your business. When you start a new business the most necessary activity is to maintain a cash flow statement for your business.

It is the essential activity for every type of business organization. It is the best tool to maintain a control over the finance activity of your business. So it is necessary to know that from where and how to obtain cash when you in need for it. Here are several steps were given to prepare a Cash Flow Analysis as prescribed below:


We all know that it takes money to make money. It means the money is a precondition to making more money. Business activity is conducted for the purpose of making a profit. To know the net income of the business organization it is necessary to prepare a cash flow statement.

Normally cash flow analysis contains three sections such as cash flow from operations, cash flow from investing and cash flow from the financing activity.

Cash flow statement covers all cash transaction occurred during the year. Many business organizations prepare monthly cash flow analysis. So you can start with the beginning period and gather all information on all outcomes and outgoings of cash for a business organization for the month. Cash flows accrued from the sales activity which includes credit as well as cash sales. Determine the other cash receipt of your business activity.

Thereafter determine the number of expenses which are incurred in your business. Collect all expenses of all business activities like purchase of office supplies, payroll expenses, taxes and other business expenses.

Now you have got the amount of both the cash inflows and outflows of your business. You should have to deduct your cash outflows from the cash inflows. If you get the positive amount it means you have a positive cash flow.

In this way, you can calculate the cash flow of your business for every month. The closing balance of the first month becomes the beginning balance for the subsequent month.

If you get negative cash flow it means your outflows are greater than your inflows. It is not good for the business. So always try to maintain positive cash flow statement of your business.

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