What is cash flow and what is cash flow planning?

At a glance

• Cash flow differs from profit because non-cash items are not taken into account
• 3 main types: operating cash flow, investing cash flow, financing cash flow
• Cash flow planning ensures solvency and supports strategic financial decisions

Cash flow definition

Cash flow refers to the actual cash flows of a company within a certain period, usually a fiscal year. Cash flow therefore indicates how much money has actually flowed in or out from ongoing business operations, investments and financing activities. Cash flow is thus a central metric for assessing the financial health of a company, its liquidity and its ability to make investments or repay debts without having to resort to debt capital. A positive cash flow means that more liquid funds were taken in than paid out – a sign of solid earning power and economic stability.

This makes cash flow one of the most important metrics in controlling and financial analysis. It serves companies, analysts and investors in realistically assessing the solvency, profitability and sustainable financial strength of a company.

Is cash flow the same as profit?

No, cash flow is not the same as profit; rather, there is a difference between the cash flow calculation and the profit and loss statement (P&L). Profit also takes into account fictitious or non-cash expenses such as depreciation, provisions or tax reserves. These reduce profit but do not lead to actual cash outflows.

Cash flow, on the other hand, refers exclusively to cash-effective transactions. Accordingly, non-cash accounting items such as depreciation or provisions are not taken into account. As a result, cash flow shows the actual liquidity of a company – that is, how much money the company really has available to make investments, service debts or cover operating expenses.

In short:

What are the three types of cash flow?

Cash flow can be divided into three main types, which represent different areas of a company's financial activity. They show where funds come from and what they are used for. The cash flow types are:

In financial analysis, the free cash flow is often also considered. This describes the amount that remains from operating cash flow after deducting investment expenditures and can be used for debt repayment, dividends or new projects.

How is cash flow calculated?

To calculate cash flow, there are two established approaches: the direct method and the indirect method.

• Direct method: Here, actual cash inflows and outflows are recorded, e.g. income from sales minus expenses for suppliers. It is transparent and suitable for detailed cash flow forecasts, but requires extensive data from accounting.
• Indirect method: Based on the annual financial statements, profit is adjusted for non-cash items (e.g. depreciation). Its advantage lies in its simplicity and the use of existing balance sheet data, which facilitates preparation – ideal for quick analyses in cash flow management.

In addition, scenario techniques such as best-case, worst-case or real-case forecasts can be used to play through various developments and develop robust liquidity planning strategies. Tools for cash flow forecasting integrate these methods seamlessly into your integrated corporate planning.

Are liquidity and cash flow the same thing?

No, liquidity and cash flow are closely related but not identical. Liquidity describes a company's ability to meet its short-term payment obligations at any time, while cash flow measures the actual inflow and outflow of money within a given period. A positive cash flow is an important indicator of sufficient liquidity, but short-term shortfalls can occur even with an overall positive cash flow, for example due to delayed payments from customers.

Example: A company achieves a positive cash flow of €50,000 in a month because customers have paid their invoices. At the same time, however, it has to settle €60,000 in supplier invoices. Despite the positive cash flow, there is a short-term liquidity shortfall. This makes it clear: cash flow measures flows of money, while forward-looking liquidity planning ensures that sufficient means of payment are available at all times.

What is cash flow planning and why is cash flow planning so important

In business administration, cash flow planning serves to ensure solvency and to avoid liquidity shortfalls that can lead to expensive loans or even insolvency. By forecasting future incoming and outgoing payments, companies gain clarity about operating cash flow, free cash flow, and total cash flow from investing and financing. This enables strategic liquidity planning that takes trends, seasonality, and unforeseen events into account.

Without a well-founded cash flow calculation, companies risk having apparent profits undone in reality by missing payments. Instead, an effective cash flow management strategy promotes financial health and supports data-driven decisions in areas such as budgeting, forecasting, and risk management.

Benefits of professional cash flow planning

Well-conceived cash flow planning offers numerous benefits for companies:

• Early detection of shortfalls: Deficits can be forecast early, allowing loans or savings to be planned in good time.
• Optimal use of resources: Surpluses are identified and can be deployed profitably, for example in growth projects.
• Risk minimization: Scenario analyses enable better preparation for market fluctuations and increase the company's resilience.
• Better decision-making: Integrated cash flow management supports the alignment of budgets, forecasts, and KPIs within overall planning.

With an integrated solution such as Bissantz's integrated corporate planning, cash flow planning is automated and linked to other business areas such as revenue planning or cost controlling. In this way, companies save time and increase the accuracy of liquidity planning.

Application examples: where are cash flow and cash flow planning used?

Cash flow and cash flow planning are relevant in almost all areas of a company where liquidity is managed and financial risks are assessed. The following examples show typical fields of application.

Summary

Cash flow is one of the most meaningful metrics in financial controlling: it shows the real liquidity of a company – beyond accounting profits. Cash flow planning makes this figure future-proof: it forecasts cash flows, detects bottlenecks early and creates the basis for well-founded financial decisions. With DeltaMaster, Bissantz integrates cash flow planning seamlessly into overall planning – on a shared data basis with P&L and balance sheet, AI-supported and in real time.