Cash flow

Cash flow is the cash entering and leaving a firm during a defined period, including operating, investing, and financing activity.

Definition

Cash flow tracks actual cash receipts and payments over a specified period. For a civil engineering firm, operating cash flow may reflect client collections, payroll, vendor payments, and other routine operating activity. Investing cash flow can include purchases or sales of equipment, while financing cash flow can include borrowing, debt repayment, owner contributions, or distributions. A cash flow statement groups these activities, though internal forecasts may use different categories and timing assumptions. Owners use cash flow to understand whether available funds can cover payroll, taxes, debt service, investment, and planned distributions. Cash flow differs from profit because revenue can be recognized before an invoice is collected, and expenses can be recorded before they are paid. It is not the same as working capital, which is a balance sheet measure of current assets minus current liabilities under a commonly used definition. Positive cash flow for a period also does not guarantee that cash is available for every future obligation.

How owners use it

• Review operating, investing, and financing movements to explain a change in cash.
• Compare expected client receipts with payroll and vendor payment timing.
• For example, $180,000 receipts - $145,000 payments = $35,000 net cash inflow.
• Use a cash forecast to plan near-term obligations and investment timing.

Related terms

• Working capitalWorking capital commonly means current assets minus current liabilities, though deal documents may define a specific adjusted measure.
• Accounts receivableAccounts receivable are amounts invoiced or otherwise recognized as due to the firm that customers have not yet paid.
• Accounts payableAccounts payable are amounts the firm owes suppliers and other vendors for goods or services already received.
• Days sales outstanding (DSO)Days sales outstanding estimates how long, on average, a firm takes to collect payment after recording a sale or issuing

Related guides and articles

• Operating benchmarks for civil engineering firmsA useful benchmark starts with a consistent definition, a clean denominator and a peer group that resembles your firm.
• How should an engineering firm owner forecast cash flow?Build a rolling cash forecast that follows how your firm bills, collects, and pays.
• What financial statements should an engineering firm owner review?Review the income statement, balance sheet, and cash flow information together.
• DSO and cash conversionEstimate how long billed revenue remains in receivables and view a simple cash conversion cycle.