Cash Flow vs. Budget: What They Are and Why Both Are Important For Your Business

Keeping track of your business’s budget and cash flow is a huge part of managing finances properly. While similar, the two rely on each other to be accurate and knowing what they are is crucial to properly managing your business’s assets. 

To begin, let’s discuss cash flow. A cash flow statement tracks the inflow and outflow of assets for a company. The equation for determining cash flow is simple. Total Income - Total Expenses = Net Cash Flow. Cash flow can be positive, neutral, or negative. 

A proper cash flow statement should also reflect where all of your business’s assets are. This includes any savings your business has on hand, loans, outstanding payments, investments, and capital investments. 

It’s only after you have determined an accurate cash flow statement that you can make a budget. A budget is a forecast of where money needs to go and when new assets will be coming in. It reflects a single moment of time in regards to financial business performance. Without knowing if your cash flow is positive, negative, or even, you cannot make a budget. 

Making accurate cash flow statements and budgets is essential for bookkeeping. Keeping up with business transactions can be difficult, but AMJ Bookkeeping is here to help. 

Reach out to us today if you need assistance managing your bookkeeping.