Finance Essentials – What are Cashflow Statements

“Many small businesses would rather face an angry barbarian horde than tackle their cash flow statement.”

Nicole Fende

The Balance Sheet and the Profit and Loss Statement work in relation to each other to show the cashflow statement, which is the movement of cash in your business.

A Cashflow Statement is NOT always included with the statutory accounts that the Accountant prepares at the end of the financial year.  It is an essential part of any management accounts reports you should ask your accountant for.

As your business grows, getting clarity on your numbers on a regular basis becomes critical to your decision-making.  But remember the Cashflow Statement, like all the other Financial Statements, is backward looking.  Putting together a Cashflow Statement is an essential part of managing your business.

The cashflow statement is:

  • Net Profit, 
  • Adding back any non-cash items that were in the profit and loss such as depreciation;
  • Taking off any capital expenses that have been incurred such as any purchase of fixed assets and;
  • Recognising the change in working capital.

In recognizing how many debtors have paid us and how many suppliers we have paid and any tax payments that have been made, our closing cash figure will be shown on the balance sheet as the balance of cash, either as an asset with cash reserves or as a liability if there is an overdraft. 

The cash statement shows you what you’ve spent your cash on and where you’ve generated your cash from in the past. It can be broken down into a more detailed analysis so that you can clearly identify, for example, profitable parts of the business especially if your business has a diverse offering. 

Where working capital has increased, there is MORE cash tied up in stock, debtor and creditors – the cash flow statement reflects this by reducing the cash balance by the net effect of the movement.  

If the working capital decreases, there is LESS cash tied up in the running of the business.  This is a trend worth following as it allows you to spot when the business is increasing its working capital, which can quickly reduce your ability to pay your liabilities on time. 

Do you feel like you have no control or don’t understand your numbers? Discover how you can feel more in control of your business, make your business worth more AND make it easier and more fun to run. Click here to contact Christine by email alternatively you can book a call with the Business Mentor of the Year 2020, author and speaker. Who helps business founders get their businesses in better shape so they can enjoy a happier, richer future.  She saves them THOUSANDS and increases the value of their businesses by MILLIONS.