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  • Writer's pictureTitus Kuepfer

Managing Your Cash Flow

Cash flowing down a river: cash flow

cash flow

/ˈkaSH ˌflō/


the total amount of money being transferred into and out of a business

Companies need cash.

Well, we all need cash.

But your company definitely needs cash. It's oxygen for a business. Especially as an enterprise grows, the expenditures really start to add up. Payroll, loan repayments, tax liabilities, economic slumps, unexpected large expenses...there are so many ways your company can get hungry for your hard earned cash.

This isn't a bad thing. As they say, it takes money to make money. However, it's important to keep tabs on the money going into and out of your company to make good financial decisions and avoid cash crunches.

Alongside your Balance Sheet and Profit & Loss, your Statement of Cash Flows is one of the most important reports for you to understand and monitor.

Statement of Cash Flows Report

Here's a cliff notes rundown of how this report works.

First of all, you've got your Net Income which is pulled from your Profit and Loss report.

Your Statement of Cash flow then adjusts this net income to reflect the actual cash flowing into and out of your company in various ways. For example, your Accounts Receivable is subtracted from your revenue since you haven't seen that cash enter your bank yet. Similarly, your Accounts Payable will be added to the balance since you have reported those expenses but you haven't actually paid the bills yet. Other adjustments to your operations income and expenses could include things such as depreciation and unearned revenue.

Next, the Statement adjusts for asset investments and sales of assets. Down-payments and cash payments on equipment, vehicles, and other fixed assets will be subtracted from your net income.

Finally, financing activities such as issuing shares of stock, borrowing money from a bank or other creditor, and repaying loans and lines of credit will be factored into the final balance.

Carefully analyzing the different elements of this report will help you understand cash flow trends and make informed decisions about your companies capacity for new investments.

Other Cash Flow Considerations

  1. Liability Repayments: It's important to be prepared for large liability payments such as payroll tax deadlines, credit card payments, and loan repayments.

  2. Business Savings: Everyone knows the importance of a personal savings account. The same necessity exists for businesses. It's imperative that you are prepared for large unexpected expenses, slow seasons, and economic down turns in order to run a sustainable organization.

  3. Your "Cash Number": In my company, there is a quick "back of the napkin" calculation that I like to run from time to time.

  • Add the balance in my checking accounts & accounts receivable.

  • Subtract credit card liabilities, tax liabilities, and accounts payable.

The resulting sum gives me general feel for the current amount of capital that my company has to work with.

Carefully using your capital to scale your company is one of the most valuable skills to hone as the owner of a growing company. Keeping a careful watch on the cash flowing into and out of your company will help you feel confident about your decisions and grow your organization in a healthy and sustainable way.

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