Cash Flow Statement:  how to read this important document

By Tammy Swasey-Ballou | Dec 23, 2012

This is the third of three key financial statements that give you an overview of your business as it currently stands and informs every new decision you make for the future of your company:

The timing of new purchases, payments, loans, and invoicing is just as important as the amount. Using a cash flow statement to determine when your business will manage its operations and looking at records of the current cash flow to measure your effectiveness could mean the difference between success and failure.

Your cash comes from three primary locations:

1)      Investments/Owner’s Equity – Money investors or owners put into the company for the promise of future gains

2)      Operations – this is your primary source of income, transactions from doing business

3)      Financing – Money loaned to your business with a repayment schedule, such as a line of credit with a bank with a specific purpose such as building inventory

Understanding and properly estimating the timing of equity pay-in and pay-outs, when to bring in an investor, when to pay-out to investors, about how much income from operations should be coming in and when, including timing of invoicing; Understanding when and how much debt to take on and how it will be allocated and repaid over time, these are all key to successfully managing the core of your business strategy. The toughest time to encounter mishandled cash flow in a business is in a time of increased demand. When your business experiences a growth spurt and must have a plan for not only operations but increasing debt while increasing output, the way you handle these sometimes split decisions can have a permanent mark on your scope of business. With a bookkeeper, your strategy will be in place when you really need it in the future.


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