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  • Writer's pictureJudah Kosky

How to use your Cash Flow Statement to Take Charge of your Business

Do you remember the first paycheck you ever received? You might have been in high school, flipping burgers or helping customers at your local grocery store. Let’s be honest - you probably blew right through it, even though you didn’t have any bills to pay at the time. Now, do you remember your first paycheck as an adult? Maybe things were different because you had rent to pay, a car payment to make, and other priorities to be careful about. 

Every year, workforce newbies will spend hours on their phone calculators, meticulously calculating how much money they can spend and how they’ll plan things out to make sure they don’t run out before their next paycheck. Sometimes, these bright eyed twenty-somethings will hit a wall when they realize that they didn’t budget for certain things or that they’re not saving enough each month for big expenses that occur less frequently - like annual vehicle taxes or unexpected medical bills.

The truth is, opening and managing a small business will give you flashbacks to this time, when adulting was hard simply because you didn’t know how to think about your finances in a big picture way.

It can be so tempting to look at your income statement and decide what you can afford from there, but you’d be making a big mistake. Instead, you must turn to your cash flow statement if you want to grow your business and be sustainable in the long run.

What Cash Flow Statements Tell us about Performance

Do you ever watch a pitch on Shark Tank and feel so impressed after hearing some company say they made $1M in sales this year only to scream “NO DEAL” at your television screen when they reveal that they are losing money and sitting on a huge pile of inventory they haven’t managed to sell? Yeah, us too. As bookkeepers, we know this struggle all too well.  When it comes to business income, things are not always as they seem. Luckily for our clients, we use a unique cash flow statement that is designed specifically to help businesses understand what their income means in the context of their overall financial position. Using the Cash Flow Statement, we help businesses measure the true success of their business by evaluating whether or not inflows and outflows of cash are working to the advantage of business owners. If not, we can help you get there. Knowing your cash flow is one of the ways good bookkeeping can boost your profits in the long run. Let us explain.

Why your Cash Flow Statement will make your business decisions easier

Using our streamlined Cash Flow Statement, we help our clients determine things like whether or not they have enough money to buy more inventory, how much they should invest in business growth at certain times, and whether or not the processes they have in place are working to their advantage. The Cash Flow Statement is smarter than your Income Statement in some ways because it reveals the impact of your business decisions. For example, your Cash Flow Statement can reveal gaps in your accounts receivable that are making it hard for your business to meet its financial obligations. This would be a signal that you should avoid taking on any more cash outflows until you get your accounts receivable sorted out. For many small businesses, decisions like this can make or break your business because the bottom line can be so tight. Every business owner knows that there are ups and downs when it comes to growing your business, but together, we can use your Cash Flow Statement to plan in advance and simplify your business decisions.

Using your Cash Flow Statement for Financial Forecasting

Let me bring you back to your early twenties again - just for a moment, I promise. How much more important was your budget when spending $200 on a reckless adventure could make you late on your rent? Cash Flow Statements can be the most useful for smaller businesses with really tight bottom lines because it can help you forecast for the future. Using your Cash Flow Statement to predict future inflows and outflows of cash can be the difference between sticking with your business plan or getting off track. When you consistently generate Cash Flow Statements and use historical data to understand seasonal trends and return on investment, you can ensure your business continues to run smoothly.

Do you feel like you could use your cash flow statement to take charge of your business? We can show you exactly how to use this important tool to grow your business and achieve your business goals.

Call: 541-508-7650

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