Breaking Down Your Cash Flow Statement

Your Cash Flow Statement provides crucial information about your business. It presents investors and lenders with a financial snapshot so they can determine if they want to give you money. It shows how you use your cash, if pay your bills too fast, and whether you stock too much inventory. It helps you collect on delinquent accounts receivables, and confirms how much operating capital you generate. Most importantly, it lets you know you’re at risk of running out of capital. Here it is broken down.




The first section of your statement dissects your operations so you can clearly see how much money your business has earned, how much it has spent, and how much you have left over. This is something potential investors and lenders will be quite interested in, because they see quickly that your business generates enough capital to ensure they receive a return on their investment or loan. The information is important for you, too, as you can see where necessary adjustments may lie.




This section of your Cash Flow Statement lists the money your business has tied up in assets, equipment, property, and other investments. Are your investments paying off? Are your assets depreciating as they should be? Do you need to reallocate funds from one investment to another? Make certain your money is working for you by reviewing this section regularly. For example, it might be in your best interest to ditch that depreciated office equipment in favor of new, updated models.




Finally, the third section of the Statement of Cash Flows (as it’s also called) consists of your business’ financing activities. This is where an accounting of the money financed is detailed. This section breaks down how much money you, your partners if applicable, and your stockholders have put into and received out of your business. It will also list any loans, credit lines, or other financing vehicles you’ve received and how you are paying them back. Are you over-financed? This section will tell you so.


Many business owners, CPAs and CFOs rely on numerous accounting reports to stay on top of the entity’s financial solvency. The Cash Flow Statement is one such report, and it gives you a quick and easy recap of where your business is at financially. Make certain you run a copy monthly to see if you are in the black or in the red. If you’re in the red, note which sections are problematic and take necessary steps to resolve financial instability sooner rather than later.

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