Lucrative Bookkeeping

What is the Statement of Cash Flows?


In the next issue of our series covering the financial statements, we are taking a look at the Statement of Cash Flows.

You may have heard that the #1 reason businesses fail is due to the lack of cash flow. In fact, this number is as high as 82% per a study done by US Bank. Of course, it’s easy to assume that if your business had enough cash, there’s no way to fail, right? The good news is that your bookkeeping and accounting can help to track your cash flow – and working with a bookkeeper or accountant monthly will help to give you the understanding you need to track this vital information for your business.

Does your business struggle with cash flow? Even if your business isn’t cash flowing as much as you’d like, keeping good track of and properly managing your cash can make all the difference!

What is the Statement of Cash Flow? Depending on your business, you may have to wait to receive payment from customers, or you may buy on credit. This vital report lays out exactly where your cash came in from, and where it went out to for the period. You may have a great month of sales, but if the cash hasn’t come in, that makes it a bit hard to pay the bills!

The statement is broken down into three main categories:

Operating activities: The report starts with this section, covering the cash flow for day-to-day operations. It’s started with this section, as most of the volume will be here. Think with the bills paid, or collections of payments due to your business – these types of activities are covered in this section.

Investing activities: This section covers investing activities your business makes. An example would be buying equipment or vehicles.

Financing activities: Does your business have a loan? Activity concerning loans received and payments to loans would be covered in this section. For example, if you have to take out a loan for a new company van, that would be covered here. 

As your business grows, there will be more to track. Reviewing this report with your bookkeeper or accountant each month will help you to make better decisions on your cash flow. If your business is struggling with cash flow, the sooner you put a plan in place to correct this problem, the better.

You can also work with your bookkeeper or accountant on cash flow forecasting. There are several programs to help with this, having various levels of complexity and features. Putting together a few different forecast scenarios will help to give you a clear picture on your business and possible strategies to take.

And keep in mind, this valuable report is only one of the three main financial statements that will give you the complete financial picture of your business. How do they all fit together? Stay tuned for next week’s issue breaking this down!

If you are otherwise looking for a bookkeeper, feel free to contact us for a free consultation!

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