What Does Your Cash Flow Statement Say About Your Business?

What Does Your Cash Flow Statement Say About Your Business?

National Small Business Week is here, bringing many opportunities to learn from our nation’s best small businesses and improve your own. One way to make your business more successful is to start paying close attention to your business’s cash flow statement.

What Is the Cash Flow Statement?

Your business’s income statement shows your net income while the balance sheet shows how much cash you have on hand. The cash flow statement provides a detailed map of where the business’s income comes from and where it goes, making it very useful for day-to-day operations.

The cash flow statement has three sections:

  1. Operating Activities (money earned from/spent on operations)
  2. Investing Activities (money spent on assets/equipment or earned from investments)
  3. Financing Activities (money distributed to owners/stockholders and funds received from/repaid to financing sources).

What Can You Learn from Your Cash Flow Statement?

If you rarely look at your cash flow statement, you’re missing key information that can help you run your business more effectively. Reviewing your cash flow statement can give you many insights into the health of your business. Here are seven things your cash flow statement may reveal.

  1. Is your business attractive to lenders or investors?

    Many investors prefer businesses that consistently generate a lot of cash; it ensures they will get their dividends. Banks look closely at the financing section of your cash flow statement to see how you have handled loan repayments in the past.

  2. Do you have excess cash available that could be better used?

    Sometimes, a business has excess cash on hand that could be used more profitably by purchasing equipment or other assets, or just by moving it into an interest-bearing account.

  3. Are you carrying too much inventory?

    Excess inventory costs money to store. Improve your cash flow by using just-in-time methods to maintain appropriate inventory levels.

  4. Are your customers taking too long to pay?

    You can shorten the payment cycle by following up on overdue payments immediately, offering discounts for early payment, and invoicing right after a job is finished. In some industries, however, lengthy payment cycles are a fact of life. In this case, a quick and easy invoice financing solution from Fundbox can help. Just register for free, click to connect your accounting software to your Fundbox account, and if approved, select which invoices you want to advance. The full value of the invoice—100%—will be sent to your business bank account in as soon as the next business day.

    You can also connect your bank account if you don’t use accounting software, which will allow you to get a line of credit instead of invoice financing.

  5. Are you paying your bills too quickly?

    Conserve cash by waiting as late as possible to pay (just make sure you don’t incur penalties or hurt your credit rating). Negotiate with suppliers for more favorable payment terms. (Learn about other cash flow mistakes you might be making.)

  6. Are your operations generating enough cash in the long term?

    In a healthy business, cash flow comes primarily from operating activities. Your business may appear to have a healthy net income based on the income statement, but the cash flow statement reveals whether most of the income is from loans or putting personal money into the business. If your core business operations aren’t generating the majority of your cash, your business isn’t sustainable as is. (Get tips for improving your cash flow.)

  7. Is your business at risk of a cash shortfall?

    Review trends in your cash flow statements to spot potential problems. For example, what if you need to buy lots of inventory for your busy season but won’t recoup that outlay until the products sell? A financing solution like Fundbox can help, and you can choose between 12 or 24-week repayment terms.

Your cash flow statement is a window into the health of your business. Use it properly, and who knows? You could be National Small Business Week’s Small Business Person of the Year.

Learn more about National Small Business Week events and online webinars.

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