What is net cash flow? Definition and formula

Net cash flow tells you exactly how much cash moved in and out of your business over a set period, and whether you ended up with more money than you started with, or less. It’s one of the simplest but most revealing numbers in your business.

Get to grips with it, and you'll have a much clearer picture of your business's financial health, beyond what profit alone can tell you.

Net cash flow formula

The formula for net cash flow is straightforward:

Net cash flow = Total cash inflows − Total cash outflows

Cash inflows include things like sales revenue, loan funds received, and any other money coming into the business. Cash outflows include expenses like supplier payments, wages, rent, loan repayments and tax. The result is your net cash flow for the period, either a positive figure (more cash in than out) or a negative one (more cash out than in).

Let's say your business had the following over the course of a month:

• Cash inflows: £45,000 in sales revenue, plus £5,000 from a customer settling an overdue invoice. Total inflows: £50,000

• Cash outflows: £20,000 in supplier payments, £12,000 in staff wages, £4,000 in rent and overheads, £2,500 in loan repayments. Total outflows: £38,500

Net cash flow = £50,000 − £38,500 = £11,500

In this example, the business ended the month with £11,500 more cash than it started with, a healthy, positive net cash flow.

What does net cash flow tell you?

Net cash flow gives you a real-time view of your business's liquidity, in other words, how much actual cash you have to work with. It's different to profit, which can include income you haven't been paid yet (like unpaid invoices) and expenses you haven't actually paid out yet. A business can be profitable on paper but still run into serious cash flow problems if money isn't moving in and out at the right times.

Tracking net cash flow regularly helps you spot problems early, plan for upcoming costs, and make sure you've got enough cash on hand to cover day-to-day operations. Read what is cash flow? to take a deeper dive into the fundamentals of cash flow.

Positive vs negative net cash flow

Positive net cash flow means more cash came in than went out over the period, a sign your business is generating more cash than it's spending. Negative net cash flow means the opposite, you spent more than you brought in. An occasional negative month isn't necessarily a red flag, especially if it's linked to a one-off investment or seasonal dip. 

But a consistent pattern of negative net cash flow is worth taking a closer look at (and addressing), as it can signal underlying issues with how money moves through your business.

How to improve your net cash flow

If your net cash flow needs a boost, there are a few steps you can take to try and improve it:

• Chase outstanding invoices quickly, and consider shorter payment terms for new customers

• Review recurring costs and cut anything that isn't delivering value

• Negotiate better payment terms with suppliers, giving you longer to pay

• Build a cash flow forecast so you can see gaps coming before they hit

• Think about short-term finance to bridge temporary gaps, rather than letting cash flow problems build up

You’ll find more useful ideas to turn a negative net cash flow into a positive position in 5 ways to improve cash flow.

Sometimes, the most effective fix for a cash flow gap is a finance product that bridges the timing difference between money going out and money coming in. For businesses needing to bridge a cash flow gap, working capital loans can provide short-term support, giving you breathing room without disrupting day-to-day operations.

FAQs

What is the difference between net cash flow and profit?

Profit is calculated using accounting principles and can include income and expenses that haven't actually been paid or received yet. Net cash flow only looks at cash that's actually moved in and out of your business, giving a more immediate picture of liquidity.

What is a good net cash flow figure?

Every business is different. There's no universal benchmark, a “good” figure depends on your business size, sector and goals. What matters most is consistency, a business that regularly generates positive net cash flow is generally in a stronger financial position than one with frequent negative months.

Is net cash flow the same as net income?

No. Net income (or net profit) is calculated on an accounting basis and includes non-cash items. Net cash flow strictly tracks the movement of actual cash in and out of the business.

Disclaimer

18/07/2026 – While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. All information is correct at time of publishing, and customers should do their own research before making financial decisions. If you have any questions, please speak to your professional adviser or seek independent legal advice.