Understanding Your Cash Flow Statement


Your cash flow statement is one of the most important financial documents for your business. You must have some idea of how much money you have coming in so that you know when you can buy more supplies, purchase equipment, or pay contractors or staff members.

Here are some strategies and tips to help you understand your statement of cash flow and deal with cash flow problems before they come up.


What is a Cash Flow Statement?


In the world of small business finance, your cash flow statement shows how changes in your balance sheets affect your cash and cash equivalents. It breaks down the analysis of your business’ operation and shows how cash flows in and out of your business.  You can see not only your current operating results but also how you balance sheet is affected.

By looking at the statements of your cash flow, you can get an idea of your business’ short term viability. Potential lenders and investors will want to see your cash flow statement before they will extend any credit to you.


Why is My Cash Flow Statement Important?


Many people who earn income from home or operate an internet business don’t necessarily see the importance of a cash flow report, especially if their business is very small. But without such a statement, you won’t be able to predict if you’re about to have a problem.

It’s important to realize that profitable businesses may not necessarily have positive cash flow. Some things do take cash out of your business even though they aren’t classified as expenses. Payments to you, the owner, and to lenders do not count as expenses, but they do have a negative effect on your cash flow.

You still need to be able to make these payments, and if your profits can’t cover them, then you have negative cash flow.


Dealing With Cash Flow Problems


If you see that you’re about to run out of cash but you need to buy supplies or equipment, you’ll need to come up with some money saving ideas fast. Taking out a business loan can also help these problems, but if you don’t plan far enough ahead, you could run out of cash before you need to make your payments.

Cutting costs will help you in the long run, so it’s usually the better option. Some money saving ideas include looking for less expensive vendors, reducing staff, or cutting other areas that aren’t paying off, like advertising that doesn’t convert to sales.

A third option is accounts receivable or invoice factoring, although this should be a last resort. This process involves selling your open invoices to a third party, which gives you most of the value of that invoice up front. Then they invoice your customer, and after your customer pays you, they subtract their fee from the balance and then give the rest to you. If you’re really in a bind, this can help tremendously because once you’re set up in a factoring company’s system, you can often get money within a day of sending them your open invoices.


Cash Flow Spreadsheets and Other Tracking Tools


There is a number of different small business software programs that can help you stay on top of your cash flow reports.  HellowWallet is one program that goes beyond standard budgeting software. It lets you enter your information and then get an analysis of how to increase your business’ net worth. It’s only $9 per month and has a free iPhone app so that you can work while you’re on the go.

Another option is Xpenser.com, which lets you record your expenses, capture your receipts, and store them for later analysis.  YouNeedaBudget.com is another program that can help you track your cash flow by suggesting to you when to spend and when to save. 

In order to build, run, and grow a successful business, regardless of how small it is, you must pay a careful attention to your cash flow statement.  Don’t go overboard with it, but certainly don’t ignore it.




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