Cash flow is the movement of money into and out of a company, representing the income and expenses that affect its liquidity and financial stability.
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Last Updated: February 9, 2026
The business definition of cash flow is pretty simple: it’s the money going in and out of a business.
Calculating a business’s cash flow for a given period provides an entrepreneur with important information about the business’s financial health. Small business owners can divide up the cash flow into money in and money out. It’s also possible to subtract the total amount of money out (expenses) from the total amount of money in. This produces a positive or negative number.
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Some business owners find it helpful to break up “money in” and “money out” into separate categories, discussed below.
It’s important for business owners to know who or what is putting money into their business. Categories include things like:
Keeping track of and checking in on the “money in” sources helps an entrepreneur to focus their business efforts. For example, this information could help an entrepreneur determine if their online sales are generating the most income. After all, the business owner spends a lot of time fulfilling online orders, so they must be getting lots of online orders. But the owner does their quarterly cash flow calculations. To their surprise, online orders are providing the business with the least amount of money in. Armed with this information, the entrepreneur can now focus their efforts on streamlining the online order process so they can focus on more profitable aspects of their business.
Many business owners can also benefit from categorizing how money goes out of their company; these subcategories can give insight into where money goes. Here are some common “money out” categories:
Business owners who know what they’re spending money on can use that information to identify which investments are delivering the strongest returns for the company. For example, these categories might help an entrepreneur discover that their online orders don’t generate as much net profit as their in-person sales. That information could help the business owner scale back the less profitable spending.
Cash flow means the money flowing into and out of a business. “Money in” includes sales revenue, owner investments, accounts receivable, and other categories. “Money out” includes expenses such as manufacturing costs, shipping costs, license fees, and other charges. Calculating a company’s cash flow helps entrepreneurs understand where their money is going and where it’s being well-spent.
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Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. For specific questions about any of these topics, seek the counsel of a licensed professional.
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