Your business cash flow is similar to waves on a beach, with revenue flowing in and expenses washing out. This is the main reason why getting a clear picture of your business’ cash flow could be difficult because revenue and expenses change regularly. However, having a clear picture of cash flow could help you pinpoint any issues and keep your business afloat.
What’s a Cash Flow Statement?
Your cash flow statement indicates changes in cash that you have on-hand, which includes bank account funds as well as short-term investments that are easily convertible to cash. More specifically, your statement should reflect the following business activities:
This includes inflow from your operating activities such as revenue from sales of services or products, dividends and interests received, as well as cash receipts. While outflow includes overhead costs, payments to vendors, payroll, income taxes and other business taxes, as well as any cash payments related to your operations.
Inflow includes borrowed money and sale proceeds from securities. Outflow, on the other hand, includes dividend and debt service payments.
Inflow includes activities to your investments such as business asset sales except for inventory, payments obtained from business loans, as well as random or unexpected sales. Outflow includes business loans and capital equipment purchases.
Summing Up and Then Some
As you can probably see by now, understanding business financial statements such as your cash flow statement are immensely crucial to gauge how well or not your business is doing at a certain period so that you could plan for the unexpected. For instance, while it might seem that you’re profitable, slow invoice collections could hinder your ability to pay operational costs if you don’t plan. ScaleFactor, Inc. says it’s best that you create and assess your cash flow statement at least every quarter.
Ensure that you understand where money is coming from and where and when you’re spending it on so that you could always meet your business’ financial obligations. If you’re just starting out or are clueless about financial statements in general, it’s also best that you get a professional to help you out or invest in specialized software.