Cash flow

A firm needs to know how much cash is coming in and going out.

Factors affecting cash flow

Drawing up a cash flow forecast [Cash flow forecast: Predicting the cash income and cash payments to be coming into and going out of a business at a given point in the future. ] shows whether there is enough cash available to pay salaries and settle debts on time. It calculates the firm's reserves [Reserves: Unused cash that a firm has available. ], which could be invested in expansion projects or new equipment. Accountants identify when shortfalls are likely to happen, and surplus funds are likely to become available. This helps them plan for when the firm might need an overdraft, or be able to reinvest its reserves into the business.