It is essential to understand and correctly carry out your company’s accounting. Indeed, accounting allows you to have a precise view of the state of your activity (resources, expenses, benefits, etc.) and of all the elements that make up your assets. That is why today we will talk about the importance of cash flow and how to track it.

Cash flow is one of the important components of business accounting. It allows you to follow the evolution of the company’s treasury throughout its life. 

Let’s learn more about this concept, starting with the basics…

What is cash flow?

Cash flow is the main inflows and outflows of money that have occurred in the context of a company’s activity.

In principle, the flow is made up of 3 main categories:

  • Cash flow from operating activities : corresponds to the income and expenses incurred daily by the company within the framework of its activities for selling products or services.
  • Cash flows from investment activities : these are those related to the acquisition of shares in other companies. It mainly involves the acquisition and disposal of shares of other companies.
  • Cash flows from financing activities : they are the different sources of financing, that is, the means by which the company obtains funds, but also the corresponding ones (dividend distribution, loan repayment, etc.).

Monitoring cash flow is especially interesting because it allows you to see the profitability of the company and its ability to finance its activity independently.

Why calculate cash flow?

These are some of the reasons why you should calculate and track your cash flow:

  • To guarantee the long-term solvency of your company

The calculation allows you to evaluate the economic health of your company and anticipate possible problems that may arise. This way, you will be in a better position to take preventive measures before complications arise. Therefore, good treasury management can considerably reduce the risks you face.

  • Saving money

Having an accurate view of your expense management also allows you to identify unnecessary expenses and eliminate them. You will be able to evaluate your surpluses and, where appropriate, invest them, in order to accumulate interest in the long term. In this way, you will be able to establish a reserve that allows your company to continue its activity in case of specific difficulties (delay in customer payments, for example) and, above all, finance future investments.

  • Control relationships with banks and investors

Finally, since cash flow reflects a company’s ability to finance investments from its operations and distribute dividends to shareholders, it is essential to have accurate and reliable reports to inspire confidence in its partners during any negotiation.

How is cash flow calculated?

Free cash flow is the free cash, that is, the available sums that have not been reinvested.

Since the flow is the result generated by the company, to calculate it you must proceed as follows: income received – expenses paid = cash flow.

  • Income corresponds to all the benefits and funds obtained by the company during a certain period;
  • Treasury expenses are all the sums that the company spends in the course of its activity during a given period.

The difficulty of the calculation lies in the fact that the flow takes into account cash differences, that is, variations in debts and credits.

Note: For calculation purposes, flows are generally recorded raw.


Track your business’s cash flow. Remember that if it is negative it simply means that the company is taking out more money than it is bringing in. In this case, a critical analysis is necessary to rectify the situation, so you avoid borrowing money to meet your financial obligations.

A positive cash flow, on the other hand, shows that the company is in good financial health and can meet all its obligations. This situation will allow you, for example, to pay your suppliers in cash.

The use of a dashboard will be very useful for you to track this and other financial metrics of your business. You will be able to have this data in real time and updated, so that you can make decisions in time.


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