Comparing Inflows and Outflows
Cash flows in and out of your business to support three kinds of activities: operating, investing and financing. These activities can occur at regular intervals (such as weekly, monthly or annually), at irregular intervals or at a single time.
Start with operating activities
This cash is collected and spent to support your business’s core activities. This could be for past or future activities — what matters is when the actual cash is collected or spent. This tells you whether or not your business can generate enough cash through its operations to sustain itself without outside help from investors or loans.
Next is investing activities
This cash is collected or spent on long-term investments, such as the lease or sale of equipment or real estate assets. Think of these as opportunities to put your money to work for you by investing in assets that could appreciate.
Last is financing activities
This cash is collected or spent on loans, dividends or equity and may be used to scale your business or weather a downturn.
Now you understand how to think about the different roles cash plays in your business. Separating cash flows in operating, investing and financing activities will give you the information you need to strengthen your business model. In the next module, let’s enter your business’s unique information into the cash flow tool.
For Informational/Educational Purposes Only: The author’s views may differ from other employees and departments of JPMorgan Chase & Co. Views and strategies described may not be appropriate for everyone, and are not intended as specific advice/recommendation for any individual. You should carefully consider your needs and objectives before making any decisions, and consult the appropriate professional(s). Outlooks and past performance are not guarantees of future results.