How to calculate cash flow for small businesses

Why cash flow matters

That moment of opening your bank app and thinking, “Do I have enough cash to cover payroll this week?” That’s cash flow in action. (Possibly also the textbook definition of a panic attack.) 

But it doesn’t have to be that way. Tracking cash flow helps you track the pulse of your business. Knowing where you stand lets you know what’s going well and where you need to add strength. It also makes you more fit to plan for the future and avoid wake-you-up-in-the-middle-of-the-night moments. 

If that’s not enough to convince you, check out the following facts. 

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By the numbers: What Canadian small businesses are facing

• Over 22% of small businesses worry about cash flow — and many still manage it manually. (Source: Made in CA)  
• Inflation is making things harder — more than half say it’s hurting cash flow. (Source: Statistics Canada)
• Nearly a third of small business owners often can’t pay themselves because of cash crunches. (Source: Xero)

How to calculate cash flow in three steps (examples included) 

Now that we’ve got your attention, let’s get back to the math part of cash flow.   

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Step 1: Gather your numbers

First things first, grab the essentials:

• Opening cash balance: How much is sitting in your bank account at the start of the month.
• Revenue: Money coming in from sales, services, or contracts.
• Loans or financing: New funds you’ve borrowed, like a line of credit or loan advance.
• Expenses: Payments for payroll, rent, suppliers, utilities, as well as existing loan interest and repayments. 
• Capital expenditures: Bigger ticket items like new equipment or technology upgrades.

Where to find these numbers:

• Inside your accounting software. 
• On your bank and credit card statements.
• From invoices and receipts, if you’re keeping things old-school.
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Step 2: Do the calculations

The no-fuss cash flow formula: Cash Flow = Total Inflows – Total Outflows. But, just like everything else in life, as these examples show, things aren’t always that simple. 

Example 1: Basic inflows and outflows

• Inflows: $10,000 (sales + new loan funds)
• Outflows: $7,000 (expenses + payroll + equipment purchase)

Cash flow = $10,000 – $7,000 = $3,000 positive cash flow

That means you’re ahead for the month. If the number dips below zero, it’s a heads-up that you may need to tweak your spending or speed up receivables. 

Example 2: Adding payroll into the mix

Payroll is often one of the biggest outflows for small businesses, and it can be easy to forget to take changes into consideration. For instance, if you’ve hired a new employee and you’re paying them $3,000 a month.  

• Inflows: $10,000 (sales + new loan funds) 
• Outflows: $7,000 (expenses + payroll + equipment purchase) + $3,000 (payroll increase)

Cash flow = $10,000 – $10,000 =  breaking even 

Now you’re just breaking even and there’s no margin for error. 

Example 3: Adding payroll and GST/HST

Now, let’s add in a tax remittance. Say you owe $1,300 in GST/HST on top of your payroll.

• Inflows: $10,000 (sales + new loan funds) 
• Outflows: $7,000 (expenses + payroll + equipment purchase) + $3,000 (payroll increase) + $1,300 (GST/HST payment) 

Cash flow = $10,000 – $13,000 = − $3,000 negative cash flow 

Uh oh! This is why cash flow feels like a juggling act. One extra expense or tax payment, and the entire balance shifts. 

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Step 3: Track and repeat

Cash flow isn’t a “set it and forget it” kind of thing. Checking it monthly (or even weekly if your business has ups and downs) helps you spot trends, avoid surprises, and breathe easier. 

Takeaway: Payroll, taxes, and other big outflows shrink your cushion fast. Keeping an eye on these moving parts is what makes the difference between staying comfortable and scrambling for cash.

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Bonus Step: Let Roy AI handle it for you

Yes, you can wrestle with spreadsheets and calculators. But why? Once you enter your info into Roy AI, it:

• Runs the numbers for you — no formulas required.
• Keeps everything live — your dashboard updates in real time.
• Looks ahead — highlighting risks and opportunities before they land.

And here’s another bonus: Huumans Payroll is built right into Roy AI. Every payroll run instantly updates your dashboard. No manual updates, no waiting until month-end. Just clarity.

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Money in minus money out

Cash flow comes down to a simple idea: money in minus money out. Understanding it is the first step. Letting Roy AI do the work for you is the game-changer. With a dashboard that updates the moment you send an invoice or run payroll, you get peace of mind. You also get more time to focus on running your business and planning with greater confidence. 

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