Three commonly asked questions among others that a good cash flow statement can answer: “Can I afford to take on a new employee? Can I afford that European holiday next year? When can the business afford to upgrade equipment?”
What a cashflow statement, you might ask? In a nutshell, a cashflow statement is a financial report that shows you where your business’s money is coming from and where it’s going, so you can understand the financial health of your business.
Times are tough these days (we totally get it!) and running a business is no walk in the park. Small business owners are always looking for ways to better manage and understand their business—a key component of understanding your numbers is your cash flow. Think of managing your cash flow like being the captain of a ship navigating the stormy seas—challenging, but crucial.
But don’t worry, we’re here to guide you through the choppy waters! That’s why we’re giving you five of our top tips to learn how to read and manage your cashflow statements, allowing your business to run a little more smoothing sailing (pun intended). Without further ado, let’s dive in!
Tip 1: Know the basics
First thing’s first: get to know the basics! Start by familiarising yourself with the three main categories that a cashflow statement is divided into.
- Operating activities
Essentially, this tells you how much cash is coming in or out from your core business operations; often including sales, inventory, receivables, and payables. - Investing activities:
How much cash spent and received from buying and selling large items like property and equipment. - Financing activities:
Involving financing a company’s operations through debt or equity cash received from or paid back to lenders, investors, and cash put in or taken out by the owner of the business.
Tip 2: Track the flow
Keep a close eye on where your money is coming from and where it’s going, which will help pinpoint the areas of strength and areas that need attention.
Tip 3: Identify trends
By comparing the cash flow over different periods of time, you can spot trends and patterns in your finances—giving you valuable insights into your business’s financial health.
Tip 4: Plan ahead
Use your Cashflow statement to plan ahead and make strategic decisions for your biz. Referring back to those questions; need to hire a new employee? Can I afford that European holiday we all so desperately dream of? Your cash flow statement will help you determine when it’s the right time to take these steps and ensure you have the funds to support them.
Tip 5: Seek support
If you need help with cash flow management, seek help from a professional (…we’re here to help and support you after all!).
Running a business requires a keen eye on your finances, and mastering your cash flow statement is a powerful tool for managing your business well. With these tips, you’ll be better equipped to understand where your money is going, make informed decisions, and steer your business towards further financial growth and success. Remember, you’re not alone on this journey—we’re here to help your business keep the money flowing and you sailing forward.
Have a question? Want to work together? We’ve got you—contact our friendly team here.