Why Your Cash Flow Statement Is Your Most Important Financial Statement
Cash is the lifeblood of your business.
Without it bills don’t get paid, there’s no new inventory coming in and you won’t get paid either.
Without good cash flow, your business doesn’t have a secure future.
That’s why the cash flow statement is the most important financial statement you can generate and study.
Yes, there are plenty of other accounting statements that can be helpful.
Maybe you’re working with income reports and are keeping an eye on accounts payable and receivable. It still won’t get you the whole picture.
Here are a few key pieces of data you may be missing without a cash flow statement:
- How much money you have available to pay suppliers, bills or invest into business upgrades.
- How much money is tied up in the company and can’t be used for day-to-day operations.
- How many of your customers have actually paid for the products and services ordered (as opposed to just being invoiced).
- You may have a lot of net worth, but without adequate cash flow, your business could be in trouble.
- A cash flow statement will show you trends and fluctuations you may miss when looking at a regular income statement.
- Without a cash flow statement you don’t know how liquid your business is.
- How quickly you are seeing a return on your investments and projects.
- You’re not getting a complete picture of your company’s financial health.
- You don’t know how much money you can safely take out of the business to pay yourself.
- You don’t know how quickly inventory turns over or how quickly new projects generate cash for the business.
As you can see a cash flow statement is a vital piece of data on your company and a good tool to have in your belt.
If you don’t already have one in place, talk to your accountant or bookkeeper or check for templates online to start tracking the cash coming in and out of your business each month.
Both investors and financial institutions will likely ask for cash flow statements should you need to raise extra capital to grow your business in the future.
If you already have a monthly cash flow statement, start paying attention to the information contained in it.
Use it to your advantage and make adjustments to ensure your company remains both liquid and growing for years to come.