Cumulative cash flow: what it is, how to work it out, and what it tells you

Short answer: cumulative cash flow is the running total of your net cash flow: each period’s cash in minus cash out, added to the total of all the periods before it. For a project (a new site, a van, a hire), it starts at zero and answers two questions no single month can: how deep the hole gets (the lowest point of the running total, which is the money you have to find before the project pays for itself) and when it climbs back above zero (the payback month). For the whole business, cumulative cash flow from a start date is simply how far the bank balance has moved since then: opening balance + cumulative cash flow = closing balance.

The formula

Cumulative cash flow (this period) = cumulative cash flow (last period) + net cash flow (this period)

where net cash flow = cash in − cash out for the period. The first period’s cumulative figure is just its own net cash flow.

Month	Net cash flow	Cumulative cash flow
1	−10,000	−10,000
2	+4,000	−6,000
3	+7,000	+1,000

In a spreadsheet with net cash flow in column B from row 2: put =B2 in C2, =C2+B3 in C3, and fill down. =SUM($B$2:B2) in C2, filled down, does the same in one formula. If you need net cash flow first, the net cash flow calculator works it out from your cash in and cash out.

A worked example: a café opening a second site in Manchester

These figures are made up and exclude VAT. Aisha runs a café in Didsbury and is opening a second one in Chorlton. The fit-out, equipment and deposit on the lease cost £60,000, all paid in the first month. Her forecast for the new site’s own cash (its takings less its staff, stock, rent and running costs) is a loss while it builds up, then about £6,000 a month once it is established.

Month	Net cash flow (£)	Cumulative cash flow (£)
1 (fit-out)	−60,000	−60,000
2 (opens)	−6,000	−66,000
3	−3,000	−69,000
4	+1,000	−68,000
5	+3,000	−65,000
6	+4,000	−61,000
7	+5,000	−56,000
8	+5,000	−51,000
9	+6,000	−45,000
10	+6,000	−39,000
11	+6,000	−33,000
12	+6,000	−27,000

From month 13 the site keeps adding £6,000 a month: −21,000, −15,000, −9,000, −3,000, then +£3,000 in month 17.

What the running total tells her

1. The money she needs is £69,000, not £60,000. The fit-out is £60,000, but the new café loses another £9,000 in its first two months of trading before it starts paying its way. The low point of the cumulative line, in month 3, is the real funding need. Her bank had offered a £60,000 loan for the fit-out; borrowing exactly that would have left her finding £9,000 from the Didsbury café’s cash in the same weeks its own bills were due. She asks for £70,000 instead, or keeps £9,000+ of the existing café’s balance aside before signing the lease.
2. The new site’s first year looks like a loss in cash terms, and that is expected. Its monthly cash flow is positive from month 4, but the cumulative figure is still −£27,000 at month 12. Judging the second site on its first-year total would make it look like a mistake; the running total shows it is on the way back.
3. Payback is in month 17. At −£3,000 after month 16 and +£6,000 a month, the cumulative line crosses zero during month 17, so the site has repaid everything put into it about a year and a half after the fit-out. By month 24 the running total is −27,000 + 12 × 6,000 = +£45,000.
4. A slower start moves both answers. If months 2 to 6 each come in £2,000 worse than forecast, the running total goes −60,000, −68,000, −73,000, then −£74,000 in month 4, because month 4 now loses £1,000 instead of adding £1,000. It is £10,000 lower than plan from month 6 on, so payback slips two months, to month 19 (−£13,000 after month 16, then −7,000, −1,000 and +5,000 at £6,000 a month). Run the cumulative column for a cautious case as well as the hoped-for one, and borrow against the cautious low point: here it is £4,000 beyond the £70,000 she planned to ask for.

This is the same thinking as incremental cash flow, which asks what extra cash a decision brings in: the cumulative column just adds those extra cash flows up month by month, so you can see when the money is at risk and for how long.

Cumulative cash flow for the whole business

For the business as a whole, the running total of net cash flow from a start date is the change in the bank balance since that date. If the bank held £20,000 on 1 April and the year-to-date cumulative cash flow at the end of September is −£7,000, the bank holds £13,000. That makes the cumulative line the same shape as a line chart of the closing balance, just starting from zero instead of from your opening balance: see the cash flow chart guide for how to draw both.

Two places it is useful:

• Seasonal businesses. A year-to-date cumulative line shows how far into the year the quiet months take you before the busy ones catch up. Comparing this year’s line with last year’s, month by month, shows early whether you are behind.
• Forecasts. In a cash flow forecast, the running total of forecast net cash flow (plus today’s balance) is the forecast bank balance. The month where it is lowest is the one to plan an overdraft, a deposit or a delayed purchase around. The free cash flow forecast template adds it up for you.

Cumulative vs discounted cumulative cash flow

The simple running total treats £1 in month 17 the same as £1 today. For a project that pays back within a couple of years, that is usually fine for an owner’s decision. For a longer one (a building, a big machine, buying a business), finance teams discount each period’s cash flow first and add up the discounted figures; the point where that running total crosses zero is the discounted payback period, which is always later than the simple one. The discounted cash flow guide explains how to choose the rate.

How to get the figures from Xero

1. Past months for the whole business: run Accounting › Reports › Bank Summary for each month. Cash received minus cash spent is that month’s net cash flow; add your bank accounts together and leave out transfers between them. Put the months in a spreadsheet and add the cumulative column.
2. Past months for one part of the business: if the second site (or the van, or the contract) has its own tracking category, the Profit and Loss filtered by that category gives its income and costs by month; adjust for big bills paid later or invoices not yet paid, since the Profit and Loss counts them when invoiced, not when paid. See Xero tracking categories reports.
3. Future months: Xero’s built-in short-term cash flow only looks 30 days ahead from bills and invoices already entered (Xero short-term cash flow), so a 12- to 24-month cumulative view for a project needs a spreadsheet forecast.

Menu names move between Xero releases and regions, so search Xero Central for the report name if your screen differs. Reconcile the bank feed first: unreconciled lines make the past months wrong.

Common mistakes

• Adding up profit instead of cash. The Profit and Loss leaves out the fit-out (it is spread over years as depreciation), loan repayments and VAT, and counts sales before they are paid. A cumulative profit line can look healthy while the cumulative cash line is deep below zero.
• Including the loan in the project’s cash flows. If the £70,000 loan goes in as cash in, the running total never looks negative and hides the funding need. Work out the project’s cumulative cash flow without the funding, then decide how to fund the low point.
• Only looking at the final total. A plan that ends +£45,000 after two years can still need £69,000 in month 3. The low point decides whether you can do it; the final total decides whether it is worth doing.
• Planning on one case. Build a cautious version too. A low point that is £5,000 deeper is the difference between a comfortable loan and an overdrawn account.

Common questions

What is cumulative cash flow? Cumulative cash flow is the running total of net cash flow over time. Each period’s figure is the previous period’s cumulative figure plus this period’s cash in minus cash out.

How do you calculate cumulative cash flow? Work out net cash flow for each period (cash in minus cash out), then add each one to the total of the periods before it. In Excel, with net cash flow in column B from row 2, put =SUM($B$2:B2) in C2 and fill down.

What does negative cumulative cash flow mean? It means that, so far, more cash has gone out than come in since the start date or since the project began. For a new project that is normal at the start. The lowest negative figure is the amount you have to fund before the project starts paying for itself.

How do you find the payback period from cumulative cash flow? The payback period is the point where the cumulative cash flow crosses from negative to zero or above. If it is −£3,000 at the end of month 16 and the project adds £6,000 in month 17, payback happens during month 17, about halfway through.

Is cumulative cash flow the same as the bank balance? For the whole business, the bank balance at any date equals the opening balance plus the cumulative cash flow since the opening date. For one project, it is not the bank balance; it is how much cash that project has used or produced so far.

What is the difference between net cash flow and cumulative cash flow? Net cash flow is one period’s cash in minus cash out. Cumulative cash flow adds up the net cash flow of every period so far, so it shows the overall position rather than one month’s.

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