Simple Cash Flow Calculations For Your Business (Plus Calculator!)

cash flow calculations


If you’ve spent time Googling “cash flow calculations” for your business, you might be overwhelmed with the sheer number of formulas and definitions that are out there.

That’s because there are a number of ways to calculate cash flow for a business – starting with the most common – statement of cash flows – onto operating cash flow, cash flow forecast, and so on.

But what do you really need to know as a business owner? In today’s blog, we’re going to make things really simple.

We’re going to tell you the three most important cash flow calculations to learn as a business owner and share with you our easy calculator in order to avoid using formulas altogether.

Let’s jump in.

What Is Cash Flow?

Let’s start with the basics. What is cash flow?

Cash flow is the amount of cash that’s moving through a business at any one point in time.

How much money do you have physically in the bank to pay for expenses?

That’s your current cash flow.

How much money will you have in the bank to pay for expenses?

That’s your forecasted cash flow, and this is where business owners spend a majority of their time.

Cash flow is one of the most important aspects of your business to monitor. In fact, 82% of small businesses that fail do so because of poor cash flow management.

In other words, most businesses mismanage money until they run out.

That’s why it’s incredibly important to keep an eye on the health of your cash flow at all times, and have contingencies in place well into the future.

What Cash Flow Calculations Do You Need To Know?

While there are various cash flow calculations that you can do for your business, we recommend leaving the complex formulas to your accountant.

An experienced accountant, especially one that specializes in cash flow management, can help forecast varying cash flow scenarios, juggle the time between bills and payments, and help you monitor cash flow in real-time.

As a business owner, there are only two cash flow calculations we recommend learning first-hand – your cash conversion cycle (CCC) and your cash reserves vs target working capital.

Cash flow calculations - u-nique accounting

1. Cash Conversion Cycle

Your Cash Conversion Cycle (CCC) is a leading indicator of how you are managing your cash flow.

It will tell you how long it takes to realize positive cash flow from a sale and let you know how much cash you will need in order to grow your business.

The lower your CCC, the better your cash management is.

Some industries are blessed with a negative CCC, meaning they collect cash up front before they deliver their product/service, but for most businesses this ratio can stretch out over a 100 days!

Yikes, that’s over 3 months of cash flow you have to front before you see positive cash flow on your sales.So, how do you calculate it?

This ratio is a combination of 3 important cash flow factors: Receivable Days, Inventory Days, and Payables Days

Let’s look at a quick example.

Sales Margin

  • Your daily revenue is $1,000/day
  • Your gross margin is 30%
  • Your cost of sales is $700/day

Cash Flow

  • Inventory Days: It takes you 60 days from when you order and pay for something to sell it
  • Receivable Days: Customer on average pay you in 50 days
  • Payables Days: On average your pay your vendors in 30 days

In this example, your cash conversion cycle is:

60 days + 50 days – 30 days = 80 days

So, what does the 80 days mean? In this scenario you are fronting 80 days worth of working capital in order to grow your business. 

If your cost of sales are $700/day, multiply that by 80 days and you could be fronting $56,000 of cash. If you are able to double your business to $2,000 of sales/day, now you could be fronting $112,000 of cash. 

Every day you can lower your CCC, the less money you front.

We talk a lot about Cash Conversion Cycle in our How-to Keep More Cash In The Bank Guide – check it out here. 

Simple cash flow calculations

2. Cash Reserves vs Target Working Capital

The second formula we recommend learning will help you identify if you have excess or deficient working capital reserves.

The first thing to do is to work out your target working capital needs.

This is likely your monthly costs multiplied by the # of months of reserves.

If your business does not pay material suppliers until after delivery to your customer, then you only need to be concerned about your monthly overhead expenses,
Otherwise, you will need to know your monthly overhead expenses + your monthly purchases (COGS).

Before the Pandemic, we would have suggested a flat 2-3 months as the multiplier, however, now we recommend 3-6 months of overhead and several months of direct costs when calculating your target working capital.

Finally, you’ll compare this target to your actual balance of cash on hand to see if you have excess/(deficient) cash on hand. A healthy business has excess cash reserves.

Cash flow calculations

3. Statement of cash flows

Last but not least, where can you as a business owner go to see why your cash flow has gone up or gone down?

Look no further than your statement of cash flows.

This overlooked financial statement will help you identify how your cash flow was utilized so you can easily understand why your cash is at its current balance.

Statement of Cash Flows: The cash flow statement shows the flow of cash into and out of your business during a specific period and is one of the three core financial statements within business accounting

The cash flow statement breaks your cash flow into 3 important areas: Operations, Investing, and Financing, and lets you see if each area had a positive or negative impact on your overall cash flow.

A company that is growing will typically see negative cash flows from their operations, and positive cash flows from their financing activities as they either borrowed debt or received capital from owners/investors to cover the cost of growing the company.

Free Cash Flow Calculator

We promised simplicity, didn’t we?

While it is great to understand your uses of cash flow and your cash conversion cycle, most business owners are concerned with having enough cash flow to cover their working capital needs, paying their debts/loans, paying their taxes, and paying themselves.

Here’s a cash flow calculator for you to use for your business, taking into account these factors.

Simply enter in a few easy figures and we’ll tell you how much money you’ll have leftover in the bank this year.

If the number is negative, it’s important to work with an accountant immediately to improve the health of your cash flow.

Cash flow calculations software

What Software Can You Use To Make Cash Flow Calculations?

Remember when we mentioned this stat?

82% of companies that go out of business do so because of poor cash flow management and visibility.

Small businesses don’t set out to mismanage their cash flow. Rather, they hire staff when they can’t afford it, or pay cash for large expenditures when it’s better to finance, or live month-to-month and struggle when a global pandemic hits.

Poor cash flow decisions sneak up on businesses little by little. Cash flow mismanagement rarely happens all at once.

This is why it’s so important to have a handle on your existing cash flow, operating cash flow, and future cash flow at all times.

Luckily, an accountant – and really good software – can help.

Here at U-Nique Accounting, we specialize in cash flow monitoring for businesses.

We help businesses forecast various scenarios in order to cover every contingency in the future and automate accounting processes so that the cash conversion cycle (CCC) is as low as it can be.

We recommend integrating your Xero accounting software with an advanced technology such as Float to monitor and visualize cash flow in real-time. 

With Xero + Float + U-Nique Accounting, you’ll be armed with the data you need to make smarter decisions around hiring, big expenditures, financing, and more.

Don’t let your business become another statistic. We’re here to help businesses like yours grow and sustain its growth.

Book your 15-minute call to learn more about U-Nique Accounting’s cash flow management services.

Until next time!

Did you enjoy this article? If so, you’ll probably like our free How-to Keep More Cash In The Bank Guide as well. Give a read.


cash flow calculations

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Matt C


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