Net Cash Flow for Small Business Owners

Net Cash Flow for an SMB/E is a critical component of a correct cash flow analysis. To make a correct Net Cash Flow for an SMB/E the SMB/E’s accounting needs to be in at least good order.  In general, the simpler, the better as to how the chart of account is set up as long as it meets the key requirement for correct numbers and timing of the entries.  

Other factors such as account payables and account receivables above 90 days for SMB/E’s need to be filtered out not to skew the analysis.  Make good notes in the accounting software as to how essential line items are treated.    

A thorough business review of the accounting system by a knowledgeable SME is a good start.  

The key accounts are:

 -SMB/E Revenues/subaccounts  

–SMB/E-Cash flow from investing   

–SMB/E-Cash flow from financing  

–SMB/E Cost of Goods Sold/Subaccounts  

–SMB/E Accounts Payables  

–SMB/E Accounts Receivables  

–SMB/E Operational Expenses  

–SMB/E Other regular expenses required for operation  

Net Cash Flow for SMB/E’s Definition:  

Net cash flow SMB/E is also known as the “change in cash and cash equivalents.” – Financial Dictionary. It is imperative to note that net cash flow is not the same as net income, or earnings before interests, depreciation, and taxes.  

It is possible to approximate an SMB/E company’s net cash flow by looking at the period-over-period change in cash on the balance sheet. Though, the statement of cash flows is a more insightful place to look.   

SMB/E Net cash flow is the sum of cash flow from SMB/E operations, SMB/E-cash flow from investing, and SMB/E-cash flow from financing.  

SMB/E Net Cash Flow is different than the straight forward generic Cash Flow as it looks at longer-term abilities of the company.  E.g., to measure an SMB/E company’s health investment income from a specific investment component that may not be a crucial part of the SMB/E operations may just be a ‘crutch’ for cash flow representation and that asset may have to be monetized for expansion at which time that contribution to cash flow goes away.   

Investors often hunt for SMB/E companies that have high or improving net cash flow but low company valuation. 

Use this Net Cash Flow information to better your business.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information: