Definition
The movement of money into and out of a business, representing its financial activity over a specific period. Cash flow is categorized as positive (when inflows exceed outflows) or negative (when outflows exceed inflows). It is critical for maintaining operations, paying expenses, and planning for growth.
Example
A small bakery earns $10,000 in revenue this month from selling baked goods but spends $7,000 on ingredients, rent, and employee wages. The remaining $3,000 is positive cash flow, which can be used for future expenses or reinvested in the business.
Tracking cash flow helps ensure the bakery doesn’t run out of money to cover essential costs.