How Do You Calculate Net Cash Flows?
Many businesses start every year but don’t even make it 12 months before closing the doors. Although failure to plan, know the market, properly purchase products, properly hire employees and other operating issues contribute to the overall failure of a business, ultimately the most common reason for business failure is running out operating capital. Even business owners who understood the market and did months of research before opening can be caught by surprise if they lack an understanding of net cash flow. Add all cash collections for the business for the current month after close of business on the last day of the month. Do not include credit card sales unless you have been credited by the credit card holder. If you allow customers to purchase on account, do not include account sales unless you have received payment. Include all payments received from credit holders and customers for purchases made before the current month. Compare your total cash collections to the total amount of
