When you talk about your business with someone that might have an interest in loaning you money, or joining you as a partner, or buying the business, they will want to see the Cash Flow Statement.

As you develop a new business plan, the Cash Flow projections are vital to proving there is true business potential.  As you look at adding something new to your existing business, the Cash Flow projections are critical.  When someone outside your business wants to look under the hood of your business, the Cash Flow Statement is something they should ask for.  If they don’t – it should give you a clue that they aren’t a serious buyer.

The Cash Flow Statement is straightforward.  It’s like your business checking account over a period of time – deposits of cash flow in and withdrawals of cash flow out.  More money should flow in than flows out, and the total should never go below zero.

Every Cash Flow Statement covers a specific period of time – a day, a week, a month, a year.  The time period of the report depends on what you are looking for.  Short periods, like days or weeks are useful for making sure your company does not run out of cash.  Months and years are useful for tracking performance over time.

Cash comes in and out of the business in three paths – operations (selling products and services and buying products, services or materials) – investing (collecting dividends and paying for capital expenses) – and financing (borrowing money and paying it back).  Cash Flow Statements track these sources separately to keep track of the three different paths.

Cash is either in the bank or not.  If a business spends more than it takes in, the cash position will decrease.  There is little room for creative accounting.  Investors look for “free cash flow” in their evaluations – the amount of cash a business collects from operations minus cash spent for capital equipment and assets.  The higher the company’s free cash flow, the better, eliminating the need to invest in the business to continue to bring in the money.

Cash gives a business options – the option to create new products and services, invest in marketing and sales, hire employees, purchase equipment, acquire another company, and others.  As a general rule, the more cash your business has available, the more options it has.

How does your business’ Cash Flow Statement look so far this year?  Did your Cash Flow actuals come out better than your Cash Flow projections?  Need help developing your Cash Flow projections?  Call for an appointment 931-456-4910.

Cash Flow – one of those Key Performance Indicators (KPIs) that you should be keeping an eye on…….