VC & PE Glossary
What Is Cash Flow?
Updated
Definition
Cash flow is the net movement of money into and out of a business over a period — distinct from accounting profit because timing of receipts and payments differs from revenue recognition.
Useful for: Founders, Investors
Cash flow is the net amount of cash moving into and out of a company during a period — the reality check behind P&L and ARR charts.
How it works
Statements divide cash flow into three buckets:
- Operating — core business: customer collections minus payroll, vendors, and rent
- Investing — capex, acquisitions, asset sales
- Financing — equity raises, debt draws, repayments, dividends
A startup can show growing revenue on accrual books while operating cash flow stays negative — common when enterprise customers pay net-60 or annual prepayments lag recognition. Conversely, a financing inflow boosts cash without improving operations.
Founders and boards watch free cash flow (operating cash minus capex) as a maturity metric. Early venture companies expect negative operating cash flow; the question is whether unit economics trend toward sustainability.
Bridge financings and tax refunds can temporarily inflate operating cash — investors reconcile “quality of cash flow” by stripping one-time items before comparing quarter-over-quarter trends.
Why it matters
- Founders: Manage collections, payment terms, and hiring to cash, not just GAAP metrics. Cash balance is the snapshot; cash flow explains the trajectory.
- Investors: Due diligence reconciles bank statements to reported burn. Surprises here kill deals faster than missed revenue targets.
Common mistake
Using EBITDA or net income as a proxy for cash available to run the business. Working capital swings, deferred revenue, and capex can diverge sharply from profit — trust the cash statement.
Related ideas
See also cash balance, burn rate, working capital, and cash-free-debt-free.
Related terms
- Burn Rate — Burn rate is how fast a company spends cash — usually measured as net cash outflow per month after revenue, showing how long existing cash will last at current spending.
- Cash Balance — Cash balance is the amount of money a company holds in bank and liquid accounts at a point in time — the starting point for runway calculations alongside burn rate.
Common questions
Short answers for founders, LPs, and operators