How do I do a Cash Flow Analysis?

To do a cash flow analysis, businesses should follow a structured process that tracks how money moves in and out of the operation. The process begins with gathering transaction data, ideally from a point-of-sale (POS) system like Clover or Revel, to ensure accuracy in recording daily sales, refunds, and inventory outflows.

The analysis is typically organized into a cash flow statement divided into three main categories:

1. Operating Activities: This includes core business cash flows, such as daily sales revenue (inflows) and payments to suppliers or staff (outflows).
2. Investing Activities: This tracks cash used for long-term assets, such as purchasing new POS hardware or kitchen equipment.
3. Financing Activities: This covers cash from loans, repayments, or other funding sources.

To calculate the net cash flow, you simply subtract total outflows from total inflows. For practical implementation, businesses can use the direct method (using actual receipts and payments) or the indirect method (adjusting net income for non-cash items). Periodically reconciling POS data with spreadsheets helps identify seasonal trends and financial risks. For long-term strategic decisions, businesses can use discounted cash flow (DCF) analysis, which applies a discount rate to future projected earnings to determine their value in today’s dollars.