Demystifying Cash Flow and Budgeting

For small business owners, the intricacies of cash flow and budgeting can seem downright confusing. But hope is not lost! Read on to get up to speed on the basics and benefit from best practices on these two financial fundamentals of business.

Cash Flow

Cash flow refers to the movement of money in and out of your business. When talking about cash flow, “cash” doesn’t just mean the kind with the faces of past presidents, but also the money moving into and out of your business from operations, investments and financing. 

A cash flow statement reports a business’s movement of money during a specified period of time, taking into account all the sources of the company’s cash and all its uses of cash. Positive cash flow means your company has more money moving into it than out of it. Negative cash flow means more money is moving out than in. 

The cash flow statement is an essential tool to assess the financial health of your business and make sure you have adequate revenue to afford your expenses. 

It’s important to understand that cash flow is not the same as profit. Cash flow is a measure of the liquidity of your business to determine if there’s enough cash on hand to spend when needed to cover expenses. Profit (more specifically, net profit) is the difference between a company’s revenue and its expenses. A business’s profit is reported in its income statement, also known as a profit and loss statement (P&L). 


Whether running a small business or managing your personal finances, budgeting is key to surviving and thriving economically. As a small business owner, creating a detailed budget is key to monitoring your income and expenses against your plans and projections.

A great tool to establish and manage a budget for your business is QuickBooks, which can link to and track all of your business’s financial accounts and activity. 

Creating a budget for your business involves four key steps:

  • Forecasting your business income from all sources
  • Determining your fixed costs such as utilities, payroll and technology services
  • Accounting for expenses that vary month-to-month such as travel, business supplies and shipping
  • Identifying one-time spends, including one-time fixed and variable costs, such as new equipment or special event expenses

Best Practices

Now that we’ve reviewed the importance of cash flow and budgeting, here are some best practices to follow to manage your business finances: 

Automate What You Can

Using a service like QuickBooks, which automatically tracks income and expenses, can provide instant reporting and help avoid human error. 

Review and Update Your Budget

It’s not enough to create a budget once. Your budget should be updated regularly to account for changes in your revenue and spending. 

Report Cash Flow Monthly

By reviewing a monthly cash flow statement, you can identify trends in the financial health of your business and understand how your business is changing over time. 

Track Every Transaction

Bookkeeping software like QuickBooks makes tracking transactions easy, but it is only as good as the information you put into it. If you use a platform like QuickBooks, be sure to connect all of your accounts so you don’t miss any transactions. It’s also important to regularly review all your transactions to ensure you aren’t being overcharged or missing out on income you are expecting. 

Have Sufficient Cash

This tip is especially important for businesses in their early stages. You never want to worry about being able to make your next payment. It’s important to have sufficient cash available, even if that’s in the form of a line of credit. While borrowing is never a preferred way to make ends meet, it is better than missing payments. 

Avoid Too Much Inventory

It’s tempting to buy items in bulk to save money and have a large inventory of items on hand, but having too much of your business’s value in inventory can be a serious risk. Stocking up on tangible items can run down your available cash and potentially force you to rely on credit to fill the gaps. 

Need help to improve cash flow or manage a budget? Contact Gift CPAs!

At Gift CPAs, our team is here to help you as you manage and grow your business. We are accounting experts and can provide guidance and assistance  as you grow your business to its full potential. 

To meet with a Gift CPAs professional and get personalized advice about cash flow and budgeting, or to learn about our other services, contact us to make an appointment.

We look forward to meeting you virtually or at one of our five locations in Harrisburg, Mechanicsburg, Myerstown, Ephrata or Lancaster!

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