Statement of Cash Flows

One of the reports that are necessary to have and review in any business is a statement of cash flows (cash flow statement). Cash flow is very important in any business but even more so in small businesses. Small businesses tend to suffer from limited budgets and cash flow issues. Cash flows issues are more detrimental in small businesses and can mean the demise of the business. A cash flow statement is broken up into three sections: operating, investing and financing activities. 

Operating activities- The inflow in this category include the revenues from selling product/services and any other cash receipts. The outflows in this category include payroll costs, payments to supplies/vendors, overhead costs, taxes of the business and any other operation-related payments. 

Investing activities- The inflow in this category include sales of business assets, payments received from loans and any other sales not in the normal course of the business.  The outflows in this category include loans made and purchases of capital equipments. 

Financing activities- The inflow in this category include money that’s borrowed. The outflow in this category are payments for debt services and dividend payments. 

When using an accounting system such as Quickbooks, the statement of cash flow will be automatically generated for your business. The first step is to understand what comprises the different sections of this type of statement. The second step is to analyze the information. The first key is to make sure that the business is having more cash inflows than outflows. The second key is to make sure that the cash from operating activities is more than the business net income. If it is less, then that is a red flag as to why the net income is not turning into cash. 

Cash is king in small businesses. A small business owner needs to analyze the cash inflows and outflows frequently to make sure that cash flows does not become an issue. The statement of cash flows being run on a consistent basis will help assure that the company continues to remain cash positive.