Operating cash flow is a familiar accounting term that is related to direct business operations. The important calculations used are helpful when getting a clear outlook of the growth and expansion of a company. For a growing business, there are the financial projections that will matter the most.
Operating cash flow helps a company get an appropriate estimation of its current and future cash flow. An accurate account of this number is usually the biggest factor in figuring out the logistics of an expansion. Instead of moving forward into unfamiliar territory, OCF lets companies take calculated risks with more predictable outcomes. When trying to meet these needs, growth and expansion are the top priority.
Growth and Expansion
Putting your company in a position for growth starts and ends with good cash flow. In order to reach this step, you have an understanding of current and future cash flow needs. Your current needs will be attributed to the growth of the company. This milestone helps with defining the expansion, which then relies on future cash flow needs.
You can’t have one without the other – the result will always mean facing some type of difficulty. Your growth is built on the solid picture you create of the company’s current cash flow needs. The experience of your accountants or bookkeepers also plays a key role. What’s included in their statement needs accuracy based on payment history, seasonal factors, terms of payment and upcoming expenses.
This comprehensive list of data gives you the projections necessary to plan for expansion. If a loan or investment is required, your company will always have a best-case scenario in hand. Growing your present cash flow only to get into debt after an expansion is not an insurmountable risk. But dipping into the red without a solid plan to get out is the nightmare of all expansions.
The Three Types of Cash Flow
Operating cash flow is important, but it’s the use of investing and financing that balances it out. At each stage of your company’s growth, cash flow types will show their value.
Operating cash flow is the benchmark, and will look at all of the core business activities. OCF will give you an idea of the highs and lows of positive cash flow and growth. If something is off with the numbers here, then the other cash flow types will feel the impact.
Investing cash flow handles capital assets and investments. How well you manage your money when looking for opportunities will be highlighted here. ICF will also give you a good idea of how well thought out your expansion plans are.
Financing cash flow is all about managing money and avoiding a financial crisis. Payments, debt and equity are all part of the plan with FCF. It calculates specific proceeds that are gained with those three adjustments.
When business operations get serious, companies have to keep up with the various moving parts. The operating cash flow formula plays a key role in the minor and major parts of a businesses. By taking out the guesswork, you can make better estimations for the future.