Net cash flow is the money that came into your business over a period minus the money that went out. Worked off your bank statements it is simply the change in your balance: positive and you ended the period with more cash than you started with, negative and you ended with less. The figure most directors want to understand is a negative one, and on its own it is not a verdict. A month holding a VAT payment, a Corporation Tax bill, or a big stock order will usually come out negative with nothing wrong at all. What tells you something is a run of them, or one you cannot account for.

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How to work out net cash flow

Net cash flow = total cash in − total cash out

Add up everything that landed in your business accounts over the period, add up everything that left, and take the second from the first. Your bank statements hold both figures, which makes this the one cash measure you can work out without accounting software or a finished set of accounts.

You will also see the formula written a second way, as three groups added together. Operating activities are your trading. Investing activities are what you spend on and receive from long-term assets. Financing activities are money borrowed, money repaid, shares issued, and dividends paid out. That is the same sum sorted by where the cash came from, in the order the groups appear on a cash flow statement, and between them the three cover every movement. So sorting them changes the detail and never the total.

The bank-statement version answers 'what happened to my cash'. Sorting it answers 'where did it come from', which is the more useful question once the figure surprises you, and it is why operating cash flow is a measure of its own.

Then pick a period and keep to it. The same business can look healthy over a quarter and alarming over the one month inside it that carried a tax payment.

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A worked example: a profitable month that lost cash

An illustrative small limited company invoiced £71,000 in a month and had £52,000 of costs, so it made about £19,000 before tax. Here is what its cash did over the same four weeks.

Figures in brackets are cash leaving the business, which is how a set of accounts shows it.

So it made £19,000 and its bank balance fell by £8,200, and three lines explain nearly all of that £27,200 gap. £9,000 of what it invoiced had not been paid yet. The £11,000 of VAT was never its money: it collected that from customers and passed it on, so it reduces cash and not profit. And the £1,200 of loan capital is money returned rather than spent, so only the interest on that loan is a cost.

Profit counts a sale the day you invoice it. Net cash flow counts it the day the money lands.

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Why a negative month is usually about timing

Most negative months are a date in the calendar rather than anything about the business, and four causes account for nearly all of them.

A tax payment. Corporation Tax is due nine months and one day after the end of your accounting period, so one month a year carries a bill earned in a different year entirely. A VAT return and its payment are due one calendar month and seven days after the quarter ends, which drops a lump sum into four months of the year. Employers' PAYE is due by the 22nd of the next tax month. Between them, those dates leave five or six months a year structurally worse than the rest.

Stock, or customers who have not paid you. Both tie up cash you have already earned or spent. Buy stock in August for a Christmas peak and August looks bad while nothing has gone wrong. That is working capital moving, not money disappearing.

Something you bought outright. A van leaves your account in one month and then earns for you over five years.

A loan repayment. Capital you repay reduces your cash and not your profit.

So there is no benchmark for a good figure. It should be positive over a year, and it may well not be in any given month. Our research, from a survey of 1,005 small business owners published in April 2026, found that 60% of small businesses have more money going out than coming in for at least half of the year. A single negative month, in a business that knows why, is ordinary.

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A positive figure can be borrowed money

Net cash flow counts everything that moved, and that includes money you borrowed. Draw down a £40,000 loan and the month looks strong on the strength of cash your trading had no part in earning.

So read the financing line before you read the total. Cash that came from customers is repeatable. Cash that came from a loan, an asset you sold, or an investor happened once, and you will be paying for most of it later.

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When a run of negative months matters

The pattern tells you what a single month cannot. Three things are worth acting on:

• Several negative months in a row with no seasonal or tax reason behind them.
• A figure that falls while your sales hold up, which usually points at collection rather than trading.
• A month you cannot account for, line by line. That one matters most, because it means your figures are not telling you what you think they are.

What you do next depends on which of those you have. Where the cause is timing, the job is to move money between months. Where the trading does not cover its own costs, borrowing will not fix it, and it is worth working through the cash flow problems behind the number instead. At the far end of the scale, being 'unable to pay its debts as they fall due' is the statutory test under section 123 of the Insolvency Act 1986. If you are near it, speak to your accountant.

For the timing kind, borrowing does the job it is good at. If a VAT or Corporation Tax bill is due before your cash comes in, an iwoca Flexi-Loan, a business loan with flexible repayment options, lets you pay it on time and repay early for free once your sales catch up. So the borrowing can end when the cash arrives rather than running on past it.

Flexi-Loan in action: Dovetail and Slate. When a seasonal dip put pressure on cash flow at the recruiter Dovetail and Slate, Guy Walker needed funding to cover VAT, salaries, and supplier bills until revenue picked up. He bridged the gap without committing to funding for longer than he needed, repaying as cash flow recovered.

A run of negative months bites hardest where income is seasonal, or where two or three large customers make up most of the sales, because then the pattern you are reading is partly theirs rather than yours.

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Net cash flow, operating cash flow, free cash flow, and profit

Four measures sit close together in a set of accounts and get used interchangeably. What each one leaves out is what makes it worth having.

Net cash flow is the broadest of the four and the only one that ties to your bank balance, which makes it the easiest to work out and the least diagnostic. It tells you what happened. The other three tell you where it came from.

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How often to work it out, and what it will not tell you

Monthly is enough for most companies, compared with the same month a year earlier rather than with last month. Work it out over more than one period before you read anything into it: a quarter smooths out the tax dates, and a year tells you whether the business generates cash.

Two things it will not tell you. Whether you are profitable, because a good month for cash can follow a bad month for trading. And whether you will have money in the account on a particular Friday, because it looks back at a period that has already finished. For the week-by-week view you need a cash flow forecast, and turning either of them into a habit is the subject of cash flow management.

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Net cash flow FAQs

Is net cash flow the same as the change in my bank balance?

Over the same period they match, and that is the quickest way to check your working. If your net cash flow for the quarter comes out at £6,000, your closing balance should be £6,000 above your opening one. If it is not, you have missed a movement. Strictly the figure covers cash and cash equivalents, so it also takes in short-term deposits you could draw on within about three months. An overdraft you use for day-to-day payments counts as a negative.

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How is net cash flow different from net income?

Net income, or profit after tax, counts income when you earn it and costs when you incur them, whether or not the money has moved. Net cash flow counts only cash that moved, and it picks up things that never touch your profit at all, such as a loan drawdown or the VAT you pass on to HMRC.