So you’ve created your cash flow forecast, what about your cash flow statement?

If you thought they were the same thing, think again. Whereas the cash flow forecasts looks forward, the cash flow statement looks at the past to report cash generated. It’s a critical financial statement and is very useful in determining the short-term viability of your company, particularly its ability to pay bills.

What goes into the cash flow statement?

A cash flow statement accounts for the cash that has come into your business over a quarter or year AND the cash that you’ve paid out. The statement is prepared along with your balance sheet and profit and loss (P&L) statement.

Isn’t that what the profit and loss statement does?

Don’t confuse the two. The P&L statement tracks revenues and expenses as and when they occur. It doesn’t track when that cash hits your bank account (this is the basis of accrual accounting). If you were to go by these numbers alone, you wouldn’t have an accurate picture of your company’s cash posture.

The cash flow statement, however, lets you see how much cash your business has generated, and excludes non-cash revenues and expenses.

What benefits does a cash flow statement provide?

If you’re seeking investment, your cash flow statement is particularly important because it gives investors a good idea of the short-term viability of your business, such as its ability to generate cash and pay bills.

If your business is consistently generating more cash than it spends, the statement can also shed light on the following:

·       Your ability to pay off debt

·       Potentially increasing your dividend

·       Your readiness to acquire another business

What goes into the cash flow statement?

Your business generates cash in many different ways, which your cash flow statement will need to account for, these include:

·       Cash flows from operating activities such as collections and cash paid to vendors

·       Cash flows from investment activities

·       Cash flows from financing activities

Great, I’m ready to prepare a cash flow, how do I do it?

Preparing your cash flow statement is too much to cover in one blog, but a quick search will point you in the direction of several guides, including this guide to preparing a statement of cash flows from About Money. Make sure to talk to your accountant too, they can help with preparation and analysis and overcome some of the more complex data gathering exercises.

Anna Eschenburg is the senior marketing manager at Fundbox. Fundbox offers business owners a simple way to fix their cash flow by advancing payments for their outstanding invoices, giving small businesses back the power to control their cash flow.

The post The Cash Flow Statement – How to put it to work for your small business appeared first on Xero Blog.

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