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  • Ashley Hutchens

Statement of Cash Flows

Last month, I discussed the three key business reports to review each month. If you are not familiar with those three reports, go back and read my blog titled Do you have these 3 key business reports?

Of those three reports, I find that most business owners struggle to fully understand the Statement of Cash flows, so we will spend a little more time diving into it.

The Statement of Cash Flows reports how much cash you have on hand.

Cash flow is the movement of money in and out of your business and your business bank account(s). As you close your customer sales and invoices, your cash flow increases (Income), adding more money to your bank account. As you pay your company bills and purchase goods, your cash flow decreases (Expenses), taking money back out of your bank account. The goal, of course, is to have enough cash left over, or a positive cash flow.

Positive cash flow should be the goal for all small business owners, generating more money than you spend. That sounds simple, but many profitable businesses run into cash flow problems from time to time. It can be a challenge to balance regular business expenses, like rent, salaries, and advertising, with things that are less under your control, especially if you cater to a seasonal type of business industry.

How to read your Statement of Cash Flows

A Statement of Cash Flows adds Operating Activities, Investing Activities and Financing Activities to determine available cash.

-Operating Activities

Reports the amount of money your company has been paid from any ongoing, regular business, such as selling of products or providing services.

-Investment Activities

Reports the amount of cash used to buy or sell long-term assets for your business, such as equipment, property, machinery, and vehicles. Over time, you want to ensure that your business can pay for these investments with income generated from your daily ongoing, regular business (operating activities).

-Financing Activities

Reports the cash received from lenders or investors, as well as the cash that is paid to lenders or investors. Simply put, if you have a business loan, that loan is required to be paid back, and would be reported in your financing activities section of your cash flows.

Not sure if your bookkeeping data is accurate enough to report these details in the most beneficial manner that you can count on and use? Let me help you gain confidence in the accuracy of your bookkeeping and reports, ask me how!

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