Cash flow
Cash flow is the net cash moving in and out of a business over a period, calculated as cash inflows minus cash outflows.
Cash flow tracks the actual money entering and leaving your bank accounts over a stretch of time, usually a month or a quarter. You calculate it by taking cash that came in from sales, financing, and other sources, then subtracting everything that went out for payroll, rent, inventory, loan payments, and supplies. It differs from profit because profit can count a sale the day you invoice it, while cash flow only counts the money once it actually lands in your account. A business can show a profit on paper and still run short on cash if customers pay slowly.
Lenders care more about cash flow than almost any other number because it shows whether you can comfortably handle a new payment. When you apply for financing, an underwriter pulls your bank statements and looks at average daily balances, how often the account dips near zero, and whether deposits cover your existing obligations with room to spare. Healthy and steady cash flow tells a lender the payment fits your real operating rhythm. Choppy cash flow with frequent overdrafts is a warning sign, even when annual revenue looks strong.
Common questions
Why do lenders look at cash flow instead of just my revenue?
Revenue tells a lender how much business you do, but cash flow shows whether the money actually arrives in time to cover a payment. A high revenue business with slow paying customers can still struggle to make payroll, so underwriters read your bank statements to see the real timing of money in and out.
Can I qualify for financing with seasonal cash flow?
Yes. Many businesses earn most of their money in a few strong months. Be ready to show a full year of bank statements so the lender can see the pattern, and consider a line of credit that lets you draw during slow stretches and repay when sales pick back up.
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