Skip to content
Log in
← Statistics glossary

cash flow

Also called: cashflow, cash flow management

The money actually coming into and going out of the business in a period. It differs from revenue and profit because payments arrive and leave at different times: an annual plan brings a year of cash at once, while the revenue is earned month by month.

Cash flow is the money that actually moves in and out of a business's accounts over a period. Positive cash flow means more came in than went out; negative means the balance fell. It's related to revenue and profit but not the same, because money often arrives before or after the work it pays for.

In a subscription business the gap is easy to see. An annual plan brings twelve months of cash on the day the customer pays, yet only one twelfth counts as MRR each month. A pre-sale brings cash before the product even exists, and that money may still have to be refunded. In the other direction, a yearly hosting bill or a tax payment can take a big bite out of a single month that looks profitable on paper.

For a small business, cash is what keeps it alive: a company can be profitable on paper and still fail because it can't pay a bill this month. Keep a simple forecast of cash in and out for the next few months, keep prepaid money you might have to return separate, and use the timing to your advantage: annual plans and prepayments turn customers into the cheapest source of funding there is.

Example

In January, before GarageDesk exists, five shops prepay 17,400 UAH (3 × 1,800 + 2 × 6,000). Cash in: 17,400 UAH. MRR: zero. The founders treat the money as not yet theirs until the promised launch date of 1 April passes.

In October 7 new monthly shops and 2 new yearly shops join. New MRR = 7 × 600 + 2 × 500 = 5,200 UAH, but the cash that arrives from them that month is 7 × 600 + 2 × 6,000 = 16,200 UAH, more than three times as much, because the yearly shops pay for twelve months at once.

Common mistakes

  • Confusing cash with revenue. A big annual payment isn't a big month of revenue.
  • Spending money that may have to be refunded. Keep prepayments aside until the promise is kept.
  • Forgetting lumpy bills. Yearly subscriptions, taxes and deposits hit single months hard.
  • No forecast. A three-month cash forecast is the cheapest insurance a small business can have.