When you’re running a business, cash flow is extremely important. All businesses have the same goal: to have more money coming in than there is going out. A positive cash flow enables your business to not only continue operating, but to expand and become successful.
Managing your cash flow therefore becomes extremely important. If you aren’t continually monitoring it, all kinds of problems can arise. One method of managing your company’s cash flow, is to produce a cash flow statement. Here, you’ll discover what a cash flow statement is and how it can potentially help your business.
What is a cash flow statement?
A cash flow statement basically shows how much cash has gone in and out of the business within a set time period. This means, it will show how much cash you’ve earned through sales. It won’t show any sales which have been made through credit which are still to be paid for.
A good cash flow statement will typically include the costs of operations, investments and financing. Your operations will make up your biggest cash flow, followed by any assets you’ve disposed of and invested in. Financial obligations such as loan repayments, payments to shareholders and any capital you’ve raised should also be included.
Together, this information produces an accurate picture of your cash flow and how well the business is currently doing.
How can it help?
There are a lot of benefits of producing regular cash flow statements. They tell you exactly where your money has gone. This allows you to see whether you’re wasting money in specific areas of the business, and where improvements could potentially be made.
A cash flow statement can also help you make better finance decisions. By seeing where the money is going, you’ll be able to decide whether you can generate extra cash by switching things around, or whether you’ll need additional financial help such as a loan.
The importance of managing your cash flow
If you want your business to succeed and avoid financial difficulties, managing your cash flow is crucial. Ensuring you have enough funds to tide you over during quieter periods, and that you’re not simply wasting money each month is important to your business. In extreme cases, failing to manage cash flow can cause you to go out of business.
If you are struggling, financial solutions such as a merchant cash advance could be needed. You could also adjust your payment terms to avoid late payers.
Overall, managing cash flow is extremely important in business. A cash flow statement can be a great way to fully understand your finances, as well as identify areas where improvements can be made.