Cash Flow Statements 101

Let’s talk cash flow statements. When is the last time you looked at one for your company? If you’re cringing right now because you just can’t remember, it’s time to change that. Your cash flow statement, or statement of cash flows, shows you where your money is going. The money coming in, the money going out. It’s vital to know where the company’s money is going, and where it’s coming from. 

Your cash flow statement is based on cash basis accounting rather than accrual, which means you will record every time money is exchanged. Always keep in mind that your cash flow is not the same as your profit and vice versa. The relationship between the two will vary from business to business, and fluctuations will occur due to the type of business. For example, cider mills will see fluctuations in their cash flow because they’re a season business. 

Three components make up your cash flow and the cash you have on hand: operation costs, asset investments, and financing. Operation costs shows how much your company has spent or made on a day-to-day basis. This number will tell you how much money your business has made. Your asset investments consists of the cash used to buy and/or sell assets for your company. The goal is to have enough money in operation costs to pay this off. The financing component shows you the cash received or paid to investors, creditors, or lenders. 

Over time you may run into issues with your cash flow, which could arise for various reasons.  While many believe that lack of sales is a cash flow problem, it’s actually not. A cash flow problem would be making sales, owing people money, but not having access to your money yet because it’s in accounts receivable. Basically, you have bills to pay but you haven’t gotten paid yet and you’re waiting on your money. 

QuickBooks accounting software is an excellent tool to help with not only your cash flow, but your accounting and bookkeeping as a whole. Invest in your company by taking advantage of your resources and understanding the ins and outs of the bookkeeping.