Finance · business glossary
What is Cash flow?
By Shivam Bhandari · Reviewed 31 October 2026 · How we write
definition
The actual movement of money in and out of a business, which can differ sharply from reported profit if customers pay late or inventory ties up cash.
Cash flow explained
Cash flow is the actual money moving into and out of a business in a period. Unlike profit, it counts money only when it is received or paid.
formula
Net cash flow = Cash received − Cash paid out
example
A month with ₹12 lakh of sales on 60-day credit can show a profit while cash falls, because customers haven't paid yet but salaries and rent have.
why it matters
Businesses fail when they run out of cash, not when they make an accounting loss. Tracking cash flow prevents surprises.
common mistake
Assuming a profitable month means more money in the bank.
Frequently asked questions
What is Cash flow?
The actual movement of money in and out of a business, which can differ sharply from reported profit if customers pay late or inventory ties up cash. Cash flow is the actual money moving into and out of a business in a period. Unlike profit, it counts money only when it is received or paid.
How do you calculate Cash flow?
Net cash flow = Cash received − Cash paid out. A month with ₹12 lakh of sales on 60-day credit can show a profit while cash falls, because customers haven't paid yet but salaries and rent have.
Why does Cash flow matter?
Businesses fail when they run out of cash, not when they make an accounting loss. Tracking cash flow prevents surprises.
What is a common mistake with Cash flow?
Assuming a profitable month means more money in the bank.
Related terms
Working capital
The cash tied up in day-to-day operations — inventory and money owed to you, minus money you owe — that keeps the business running between sale and payment.
Runway
How many months a business can keep operating at its current burn rate before running out of cash.
Burn rate
How fast a business is spending its cash reserves each month, typically used when a business is running at a loss funded by savings or investment.