Calculating cash flow is one of the most relevant financial aspects for a company, as it is an instrument used to inform whether a business will be able to have enough cash to operate normally, even if it can be expanded, as well as how much it could need when applying for financing.

To give you an idea of how important this factor is, it is estimated that the lack of liquidity has ended with more than 30% of SMEs in Mexico.

A correct calculation of cash flow, as well as keeping finances in good condition, is essential for the future of any company, especially for an SME.


What is projected cash flow?

This data is of great importance to have located both the inflows and the outflows of cash that there are, determining if there will be deficits or surpluses of this, how they will affect and how long they will last.

In this way, actions can be determined in advance and have enough time to avoid possible problems with the projected cash flow that may arise.


How to calculate cash flow?

Cash flow is an important piece of information for any company, and its status can demonstrate the state it is in. Consider the following simple formula to do the calculation, and it is this:

Cash flow = net profit + amortizations + provisions + accounts payable – accounts receivable

A result greater than 0 indicates a good flow and the ability to generate profits, while a negative result indicates losses.

The following steps can be helpful in analyzing the finances and flows of the company:

  • Find the initial balance: for this you must take the bank accounts and their final balances.
  • Projects the income: this is based on the history of recent months, and the income that remains to be obtained from invoices that are pending collection.
  • Project expenses: for this you can determine expense items (in previous months), such as services, suppliers, employees, taxes, marketing and investments.
  • Establish the operating expense: to determine it you must subtract the expenses from the income. This way you will know if sufficient resources are generated to cover the expenses for the operation of the business.
  • Calculate financial costs: here are all payments for interest, amortization and installments derived from commitments made with financial institutions.
  • Estimate the final balance: at this point you will know the state your company is in. To calculate it, the initial balance is taken, this is added to the operating expense subtracting investments, financing and debt. The final balance of a month is the beginning balance of the following month.


Tips to improve this element

Now that you know how to calculate cash flow, keep in mind the following tips to make the use and availability of your company’s resources more efficient:

  • Make the projections month by month to keep track.
  • Manage the payment of invoices, with payment incentives and shorter terms.
  • Set fixed expenses and get rid of unnecessary expenses.
  • Have a contingency plan and an emergency fund.
  • Plan your inventory well so you don’t invest too much.
  • Meet the deadlines to make your payments.


Financing for SMEs

If by doing your calculations and a financial analysis, you determine that you need a cash advance and you can handle it, Pymes Capital has just what you need.

Financing for SMEs through MCA (Merchant Cash Advance) can benefit your company’s cash flow and enhance its operational capacity, thanks to the immediacy with which you can count on financial resources.

You can make your request easily, online, and in a short time you will be taking advantage of its benefits. To make your business prosper, count on the support of Pymes Capital.