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What is Net Cash flow Calculator?

Net Cash Flow calculator determines how the business is performing cash flow-wise.

If you feel like you don’t know cash flow health, this guide is for you.

In this guide, I am going to share with you comprehensive information about the net cash flow calculator.

Let’s go.

Net cash flow calculator is a tool for business owners to identify how the business cash flow is performing. Look, a business can have positive as well as negative cash flow.

It calculates the net cash flow generated, whether it’s positive cash flow or negative cash flow, from business operations from the three categories. They are:

  1. Net cash flow from operating activities

    cash flow from operations

  2. Net cash flow from investing activities

    cash flow from investing activities

  3. Net Cash flow from financing activities

    cash flow from financing activities

Here’s an example of a net cash flow calculator which incorporates net cash flow from all three categories.

Net cash flow calcualtor example

In this example, it shows:

When you add the opening cash balance of £2,000, you arrive at a closing cash balance of £37,850, as in the example.  By the way, adding the opening and closing balances to the net cash flow becomes the cash flow statement.

Consider a cash flow statement like a mark sheet of cash performance and how well the business is performing from the cash point of view.

Why Is net cash flow calculator important?

A net cash flow calculator is crucial for business owners as it offers insight into their current financial status.

  • You can make calculated decisions regarding allocating and optimizing your financial resources by utilising insights.
  • It shows you where your cash is coming from and where it’s going out in the three categories mentioned above, which means that you know exactly how each of the three categories of cash flow is performing.
  • Furthermore, by tracking cash flows over time, you can identify trends in cash movements, identify cash leakage and ensure you have enough cash for working capital commitments.

Understanding the Features of a Net Cash flow Calculator

A net cash flow calculator factors in various sources of income and expenses, including sales revenue, investment income, loans received, operating expenses, loan repayments, and investments made. This results in a comprehensive overview of an individual or business’s cash flow situation.

A net cash flow calculator can provide detailed analysis and forecasting. It can break down cash inflows and outflows by category, showing where the cash comes from and where it goes.

This analysis helps identify areas to reduce expenses or increase income, improving overall cash flow.  Furthermore, it also forecasts cash flow based on expected changes in income or expenses, aiding in informed financial decisions.

It can calculate the ROI, which is an important factor. This metric provides insight into the effectiveness of an initial investment in a set of activities. 

It helps determine if it was a worthwhile use of funds or if there were better alternatives. Analyzing your ROI allows for better resource allocation and profit maximization.

5 Reasons Why You Need a Net Cash flow Calculator

According to a survey conducted by Quickbooks online, cash flow challenges post-pandemic is real. So, having an up-to-date cash flow report is essential for any small business owner who wants to keep track of their financial success over time.

Here are the top five reasons why you need a net cash flow calculator:

1. Monitor Cash Flows – A net cash flow calculator allows you to easily track both positive and negative flows of money, so you can make more informed decisions about where your money should be allocated.

2. Calculate Return on Investment (ROI) – With a net cash flow calculator, you can determine the ROI for each series of cash flows. This metric helps you decide if your initial investment into a set of activities was worth it or not.

3. Identify Trends – Net cash flow calculators allow you to track trends of cash inflow and cash outflow to forecast potential future cash position.

Trends, whether cash inflow is increasing or decreasing and similarly cash outflow is increasing or decreasing. Which type of cash inflow is increasing or decreasing as well which costs are increasing and decreasing? 

Going through the trends will help you identify cash flow gaps and figure out cash leakage.

4. Increase Efficiency – By understanding your current financial health, you can maximise your resources and increase efficiency within your business.

5. Improve Planning – You may have heard failing to plan is simply planning to fail, right? By accurately tracking your net cash flow over time, you can better plan for short-term and long-term success.

Think of cash flow planning like driving a vehicle. You drive by not looking at the bonnet; you drive by looking at far as you can so that you can plan for changing the lane and increasing the speed of the vehicle so that you can avoid potential traffic hazards.

In the same way, you plan for cash flow so that you do not run into cash flow issues where cash is not covered for current liabilities.

How to Use a Net Cash flow Calculator for cash flow planning

Cash flow planning can be one of the most important aspects of running a successful business. A net cash flow calculator is an effective tool to help you organize and monitor your finances. Here’s how to use the tool for cash flow planning:

1. Gather your financial documents – Start by gathering all of your financial documents, such as income statements and balance sheets. This will give you an accurate picture of what money is coming in and going out on a regular basis.

You can get this information from your accounting software, which prepares financial statements. If you don’t know how to access particular reports, I suggest you ask your bookkeeper or accountant.

2. Calculate your net cash flow – Subtract all cash outflows from all cash inflows over the specified period of time. This includes both operating expenses (costs associated with running the day-to-day operations)

3. Compare your results – After calculating your net cash flow, compare it to other financial metrics such as current assets and liabilities. This will give you a better understanding of your business’s financial health.

4. Adjust cash flow planning – Once you have a good picture of your finances, use the net cash flow calculator data to make more informed decisions about allocating resources and maximising profits.

5. Monitor regularly – Finally, remember to monitor your cash flow regularly to ensure you stay on top of any changes in your finances.

How to use a net cash flow calculator (STEP BY STEP)

Here’s a detailed step-by-step process on how to use a net cash flow calculator :

1. Gather your financial documents – Start by gathering all of your financial documents, such as income statements and balance sheets. This will give you an accurate picture of what money is coming in and going out on a regular basis.

2. Calculate the flow from operations – Subtract any non-cash expenses, such as depreciation and amortization, from all cash inflows (receipts) to get the total flow from operating activities.

3. Calculate the accounts receivable (AR) cash inflow – Add up all cash receipts related to accounts receivables to calculate the AR cash inflow for the period. These are cash you are expecting to receive from your customers.

4. Calculate the accounts payable (AP) cash outflow – Add up all cash payments related to accounts payables to calculate the AP cash outflow for the period.

5. Calculate the net cash flow from operations – Subtract the AP cash outflow from the AR cash inflow to get your total net cash flow from operating activities. These are cash you need to pay your suppliers.

6. Calculate investment activities – Add up any investments made in short-term or long-term assets, such as property or equipment, to calculate the amount of money invested during the period.

7. Calculate financing activities – Add up any loans taken out and any funds raised through issuing stocks or bonds to calculate the amount of money borrowed during the period.

8. Calculate any other non-cash expenses – Subtract any other non-cash expenses, such as taxes or administrative expenses, from the total cash outflows to get your total net cash flow.

9. Calculate the total net cash flow – Add up all the cash inflows and subtract all the cash outflows to calculate your total net cash flow for the period.

Using a net cash flow calculator lets you quickly and easily see how much money is coming in and going out each month. It also allows you to compare your business against others to determine if you’re getting a good return on your initial investment. 

With this information, you can make more informed decisions about how to allocate resources and maximize profits.

How to Use a Net Cash flow Calculator for Your Business

A net cash flow calculator can aid business owners. First, collect relevant financial documents like the income and balance sheets to create a cash flow statement.

When calculating cash flow for a specific period, it is important to subtract all cash outflows from all cash inflows, including operating and non-cash expenses such as depreciation and amortization. 

It is also important to consider accounts receivables and accounts payable in the calculations.

After calculating, the net cash flow can be compared to other financial metrics like current assets and liabilities. This provides a clearer insight into the financial health of the business.

The net cash flow calculator data can then be used to make more informed resource allocation and profit maximization decisions.

Consider the time frame of using the net cash flow calculator because it is possible to get an inaccurate picture of the business if the cash flow is only considered over a short period of time. 

A longer period of time can provide a better view of cash flow trends, which can be extremely helpful for businesses.

Overall, using a net cash flow calculator is an important tool for business owners and management teams alike.

How to calculate net cash flow using Shishir Khadka's tool

In this section, I am going to show you how to calculate net cash flow using my cash flow calculator tool.

Limitations of net cash flow calculator

The net cash flow calculator has limitations that should be considered.

  • The net cash flow calculator does not factor in non-cash expenses like depreciation and amortization, which can notably affect the business’s financial well-being.
  • It focuses on long-term trends, it may not accurately represent short-term fluctuations in cash flow, which can be misleading.
  • The net cash flow calculator does not provide the business’s profitability information.
  • It can provide a helpful overview of a business’s financial health, but it is important to recognize its limitations and not rely solely on it. 

Hope you find the article helpful and the cash flow calculator tool to calculate your net cash flow.

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And finally, if you like this content, I’m sure you will like to follow the next step, which is about – how to have cash flow clarity. You can go through the content by following this link.

Hope you find it useful to incorporate into your business so that your business is financially stable.

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Shishir Khadka, qualified as a chartered certified accountant in 2009. He is the creator of cashflow hub– the world’s most comprehensive cash flow resource online and is one of the UK’s leading cash flow specialist who helps busy business owners and entrepreneurs generate more profit and create consistent positive cash flow without over relying on getting new sales.

He has delivered a masterclass to a global software Zoho’s audience to create consistent cash flow. He has written articles for floatapp– one of the leading cash flow software and has also been featured in the major publications such as Independent. He has been sharing his learning and insights on his youtube channel.

He wrote about his learnings from helping an e-commerce client scaled the business cash flow positive from £500k to £1.6m in four years in “The Three Key Obstacles to Faster Growth: How You Can Overcome Them Using Cloud Accounting.

In his career spanning 18 years as the cash flow specialist, he has helped businesses of all sizes, ranging from £40K to £40M.

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By Shishir Khadka, FCCA.