Cash Flow Management

Business cash flow - key to your company's success

The number one reason that businesses fail is that they don’t manage their cash flow well. Focused Energy offers cash management solutions to help ensure your business always has the cash-on-hand to operate and grow. Our cash management experts make sure you are able to keep up with payroll, paying bills and vendors on time and more.

What is a cash flow statement?

Of all the challenges that businesses face, cash flow is one of the biggest. This makes the cash flow statement one of the most important tools a business owner has. The cash flow statement is one of the four primary financial statements, and is set apart from the other financial statements in one significant way. While most of them are based on accrual-method data, the cash flow statement details the actual cash received and spent during the statement's defined time period.

Cash flow statements are usually created on a quarterly and year-end basis. The statement summarizes the cash transactions related to the company’s daily operations, investments, financing, taxes, interest, and any other significant exchanges.

How to create a business cash flow statement

Creating a cash flow statement isn't as difficult as it may sound. To start with, determine the time period that the report will cover. That time period must be specified in the header of the report. For example, create a cash flow statement that reads "For the quarter ending March 31, 2019" to detail your cash flow for the first quarter of the year.

Operating activity

The first section of the cash flow statement shows the transactions related to your operating activities. The figures should reflect the change in the balance of your current asset and current liability accounts. This includes accounts payable, accounts receivable, inventory, prepaid insurance, wages payable, taxes payable, and unearned revenues. It also includes depreciation and the gain or loss on the sale of capital equipment.

Investment activity

The second section details the cash transactions that affect your investments. This means the change in the balance of your long-term asset and long-term inventory accounts. That includes business land, vehicles, buildings, and equipment.

Financing activity

The third section of the cash flow statement lists the financing cash received and spent. This includes the long-term liabilities, which means all financing activities due after at least a year. It also should reflect the stockholder's equity and retained earnings.

Supplemental information

The final section of the cash flow statement details all of the supplemental information that doesn't fit in any of the previous sections. It typically details any interest or taxes that have been paid, as well as any one-off significant transactions that could be considered substantial and of material worth to the statement.

Cash flow template

You can also use our cash flow template to get started with getting your company's cash flow statement together. Our template is in Excel and is annotated so that it is easy to understand where to put cash related items. It will help you to forecast your cash, cost of goods sold (COGS), payroll, and operating expenses. You will find that it is simple to customize for your business and precise enough to give you the confidence you need to keep your company on track and money in the bank.

If you have questions, please reach out to us online or call 844-413-6287 and we will be in touch with answers.

How to analyze a business cash flow statement

Since the cash flow statement reflects the actual cash transactions, as well as the cash on hand, it is an important tool for assessing your company's operations. If your business can show a steady flow of cash coming in, and a history of more cash coming in than going out, that shows strong operation. In addition, that excess cash can be used for investments, business acquisition and more. This reflects well to potential shareholders as a sign of strength, stability, and a good investment.

In addition, when compared to the net income figures on your company's income statement, cash from your operating activities should be greater than your net income. When this is the case, it is a reflection of strong business operations. If your cash from operating activities is lower than your net income, it is a sign that you need to determine why your company isn't turning income into cash.

Why cash flow management is vital for successful businesses

Knowing how to create and analyze a cash flow statement is important, but understanding the value of that cash flow helps to optimize the information to make business decisions.

The importance of cash flow

Since the vast majority of business failures are the result of faulty cash management, understanding your company's cash flow is essential. You need to know what is physically coming in and going out to know how your company is performing.

Blog: Realizing the Importance of Cash Flow

It takes more than just increasing sales to resolve cash flow issues. You also have to know exactly what your company spends, and what that money is spent on. Additionally, you need to be able to identify growth-essential spending as compared to optional spending that you can forego.

You cannot adequately assess your ability to make business investments or consider new ventures if you don't know what kind of cash you have on hand. This can result in poor investment decisions that can leave your company cash-poor and struggling. Keeping a sound eye on your company's cash flow will help you to set, and achieve, quality operational and growth goals.

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