Summary: Cash flow is essential for business and investment success – so let’s get to the bottom of exactly what it is and how to make more of it! Understanding and tracking the different types of cash flow will help you use your revenue to increase wealth and secure your financial future.
There’s really nothing more fun than chatting about cash money, right? 💵😏
Well, that’s exactly what we get to tackle today. More specifically, though, we’re talking about the movement of cash – AKA cash flow.
Let’s face it. For all you savvy investors, entrepreneurs, and business owners – understanding and managing cash flow is key to optimizing your success and income. Stagnant money that sits still and doesn’t move? Well, that’s notttt going to create growth or generate more money.
In business, investments, and life, we’re looking for money that MOVES.
If you’re looking to continuously increase your wealth and success, then good cash flow is what you’re after. Of course, it’s not as simple as it might sound, because there are different types of cash flow, and different ways to use them.
It’s important to understand the differences between positive and negative cash flow – and how to make sure you’re effectively managing both to facilitate growth. Plus, there are 3 main types of cash flow, and understanding each one will help you sustain a solid financial foundation and future. 🙌
So, let’s cover how to ultimately maximize your returns with good cash flow. Here’s what we’re covering today:
What exactly is good cash flow?
We’re sure you’ve heard about cash flow plenty of times, but let’s break it down today. What is good cash flow, why is it important for business and investment growth?
Well, cash flow is defined as the net amount of cash being transferred in and out of a company.
When it comes to financial reporting for a business, the main focus is the cash flow – how much money is made, how much is spent, and how much it affects the overall financial performance.
Sounds simple enough, right?
Well, there’s a bit more to it than that. You see, truly understanding what cash flow is, means learning about the differences between positive and negative cash flow.
- Positive cash flow is when there’s more money coming in than out.
Now, you miiiight be thinking that having positive cash flow automatically equals success, and that thinking totally makes sense. Positive cash flow is a great thing! Having more money coming in than going out means your business has enough money to cover expenses, and can be invested to create more wealth. 👌
But here’s the thing. While positive cash flow is a sign of incoming revenue, it isn’t always the same as good cash flow.
Good cash flow refers to how well the positive cash flow is managed, spent, and invested. If incoming cash isn’t used as effectively as possible, it’s less likely to help you meet your long and short-term financial goals.
So, making sure that the cash coming in exceeds the cash going out is great, but being able to put that incoming cash into the right investment assets is your way to overall financial growth.
- Negative cash flow is when there’s more money going out than in.
If positive cash flow is a sign of solid financial health, then it makes sense that negative cash flow is notttt the most desirable thing for a business – at least, not when it lasts a long time. When expenses outweigh revenue for too long, there can be a strain on business resources and depletion of the cash reserves.
The long-term effects of negative cash flow can decrease future success, because there’s not enough capital to put into new investments.
Now, the caveat here is that negative cash flow isn’t always a negative thing…confusing, we know. 😉
When it comes to investing, you may have a negative cash flow at first, if you start with a large investment asset (liiike apartment buildings). But the cool thing is that your negative will quickly turn into a positive – paying off in returns and cash flow down the road.
It might seem strange, but this is what we mean by GOOD cash flow. The right financial decisions will lead to more future cash flow, and that is what it’s alllll about.
We’ll talk more about this in a bit.
For now, let’s cover the different types of cash flow, so you have a solid foundation for staying in good financial health.
By tracking each of your different types of cash flow, you can stay on top of how much is being spent and why – which will help you make informed decisions that get you closer to your goals.
The 3 main types of cash flow
- Operating cash flow
First up, let’s talk about operating cash flow. This is the money that basically keeps a business operating…hence the name.
Operating cash flow refers to the sales coming in, as well as the expenses going out – like for paying employees, overhead costs, taxes, etc. We’re talking about the day-to-day revenue expenses here, that go into keeping a business going.
When you’re tracking your operating cash flow (also called OCF), you can clearly see if overall cash flow is positive, based on whether or not there’s enough incoming revenue to cover necessary expenses.
If the numbers point towards negative cash flow, you can adjust regular expenses by noticing what’s most beneficial to the long-term success of the business. Some expenses can be reduced for a time, until more revenue comes in to keep cash flowing positively.
- Financing cash flow
Different from the daily expenses of operating cash flow, financing cash flow refers to the money used to fund financial activities of a business – like debt, equity, and dividends.
Any loans that are taken out, stocks or shares that are sold, and capital raised goes into the cash flow from financing activities (CFF). This capital can be used to cover some operating costs – but it’s really an indicator of the net flow of cash that can be used to fund the entire business.
Keeping tabs on financing cash flow is how you know how much capital is available for things like investments – and can help you make the best financial decisions for your business.
- Investing cash flow
Last, but definitely not least, we have investing cash flow – which is the money earned and spent on investment activities.
Investing cash flow (CFI) is linked to any type of investments – like physical assets, securities, other companies, or any resources contributing to the long-term growth of the business. Investing cash flow is money that is used to create future value, in one way or another.
Now, we could talk about all sorts of different investments here, but we want to focus on the cash flow that comes from investing in fixed assets, and leads to future returns.
Yep…we’re talking about real estate investing!
It’s no secret that we, the Kitti Sisters, have a favorite method of increasing cash flow through investing, and it’s called multifamily apartment investing! 😍
See, apartment buildings are fixed assets with minimal risk and high returns. By investing in multifamily apartment buildings, you can generate ongoing cash flow through incoming rent – PLUS you get a high-return down the road, when the property sells.
Sooo, as far as good cash flow goes, multifamily apartment investing really is an excellent choice. Even though purchasing an apartment building may seem to produce negative cash flow up front, the long-term cash flow possibilities are alllll positive. ➕➕
Especially during challenging economic times (ahem…like crazy high interest rates and growing inflation), investing capital into a solid physical asset with long-term financial benefits is a great way to ensure GOOD cash flow for your business.
It would be our absolute honor to help you create a solid financial foundation for your future, while increasing your cash flow in the short and long-term. All you have to do is take the first step. 🙌
Click here to start putting your money to work with multifamily apartment investing!
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