Net cash flow calculator: did more cash come in than went out?

The net cash flow formula

• Net cash flow = total cash received − total cash paid out, for one period.
• It always equals closing bank balance − opening bank balance. If the bank went from 28,000 to 23,900, net cash flow was −4,100, whatever the Profit and Loss says.
• Split into three parts, as on a cash flow statement: net cash flow = operating + investing + financing.
  • Operating (trading) = received from customers − paid for running costs − tax paid.
  • Investing = equipment and assets sold − equipment and assets bought.
  • Financing = new loans and owner money in − loan repayments − drawings or dividends.

The total tells you what happened to the bank. The split tells you why, and that is the part worth reading. Operating minus equipment bought is free cash flow, the cash available before loans and drawings; the free cash flow calculator works that out from profit or from operating cash flow. New to the term? What is cash flow? explains the three kinds, when negative cash flow is fine, and why it differs from profit.

How to calculate net cash flow: a worked example

A plumbing and heating firm in the UK, one quarter. Made-up figures to show the arithmetic.

	£
Received from customers	96,000
Paid suppliers, wages, rent and other costs	(71,500)
VAT and corporation tax paid	(14,200)
Operating cash flow	10,300
New van bought	(24,000)
Old van sold	6,000
Investing cash flow	(18,000)
Van finance drawn	15,000
Loan repayments	(2,400)
Dividends paid	(9,000)
Financing cash flow	3,600
Net cash flow	(4,100)
Bank at the start of the quarter	28,000
Bank at the end of the quarter	23,900

Check it the short way: cash in was 96,000 + 6,000 + 15,000 = 117,000, cash out was 71,500 + 14,200 + 24,000 + 2,400 + 9,000 = 121,100, and 117,000 − 121,100 = −4,100. The bank fell by the same 4,100. For a longer list of what counts on each side, grouped the same way, see cash inflow and outflow examples.

What it says to the owner:

• Trading is fine. The work brought in 10,300 more than it cost, after a VAT quarter and a corporation tax payment.
• The fall is the van swap. The van cost 18,000 after the old one was sold, and finance paid for 15,000 of it, so the swap took only 3,000 out of the bank. Without the swap and its finance, net cash flow would still have been 10,300 − 2,400 − 9,000 = −1,100.
• So the real point is the dividends. 9,000 of dividends plus 2,400 of repayments took more than the 10,300 trading produced. One quarter like that is fine; four in a row would take 4,400 off the bank in a year before any van.

Press "Load the worked example" above to see it in the calculator.

Net cash flow vs profit

The same firm's Profit and Loss for the quarter will show a different figure, often a higher one, because it counts work when it is invoiced, not when it is paid, spreads the van over several years as depreciation, and does not include dividends, VAT or loan repayments at all. That gap is why an owner can read a good profit and find less in the bank. Profit but no cash walks through each reason, and the profit but no cash explainer works it out from your own figures.

Finding net cash flow in Xero

1. Go to Accounting › Reports › Statement of Cash Flows and pick the period.
2. The report groups bank transactions into operating, investing and financing activities and shows their total (the net cash flow), then cash at the beginning and end of the period. The Xero statement of cash flows explained goes through each line, and cash flow from investing and financing activities shows how a loan can hide a cash problem: a landscaping company's bank fell only $2,000 in a year because a $50,000 loan paid for $30,000 of dividends.
3. Xero builds it from what is coded to your bank accounts, so an unreconciled bank feed or a loan coded as income will show up in the wrong section. If the closing figure does not match the bank, see why the Xero bank balance does not match.

For a full statement built both ways, see the cash flow statement example. To look forward rather than back, the cash flow forecast example sets out 12 months, and the cash runway calculator shows how long the bank lasts if net cash flow stays negative.

If your net cash flow is negative

• Trading negative: look at what customers owe first. The debtor days calculator shows how late they pay, and how to improve cash flow ranks the levers.
• Trading positive, total negative: it is equipment, repayments or drawings. Decide whether they repeat, and whether drawings should come down until trading catches up. How much can I pay myself covers that.
• A one-off tax payment: compare the quarter with the same quarter last year, not with the month before.

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