Cash flow statements are by far the most effective tool for analyzing your business’s cash flow. That being said, by calculating your OCF—also called cash flow from operations—you can quickly see how much cash you have to work with.
Simply put, you calculate OCF using the following formula:
OCF = Total Revenue – Operating Expenses
Let’s say we’re calculating cash flow for the prior month. Your total revenue is how much money has come into your bank account—via accounts receivable, direct sales, or a mixture of the two. Total revenue does not include money you make from investments. Your operating expenses are everything you’ve spent in order to keep your business running and produce your product or service.
Calculating OCF doesn’t just prevent you from overdrawing your bank account. Tracking it over time can also tell you whether it’s increasing or decreasing and help you plan how to change that.
Keep in mind that, unlike cash flow statements, OCF won’t tell you exactly where your money is going to or coming from.