Tools for Business Success

Mistake to Avoid: Not Preparing and Utilizing an Effective Cash Flow Statement

While an income statement can present a true picture of the operating results of your business, understanding what is happening with your cash flow is also critical and can help you with the day-to-day operation of your business. Managing your business without adequate cash flow to meet operating needs and to take advantage of marketplace opportunities can make life miserable.

Benefits of an Effective Cash Flow Statement

• You will better understand the day-to-day financial dynamics of your business.
• You will better understand the long-term financial dynamics of your business.
• You can anticipate upcoming needs.
• Preparing one will probably help you identify some ways to improve your cash flow.
• Your lender will probably require one.
• You can have some peace of mind.

Preparing a Cash Flow Statement

Most businesses prepare Cash Flow Statements at least annually and many prepare one each quarter. Here is a format that you may find helpful. You might want to start with one for the prior year to become familiar with the process and then start doing quarterly projections of your cash flow.