Table of contents
Table of contents
Having cash in real life means you’ve rooted out enough loose change to pay the takeaway driver, but it’s different in a business. Cash in your business doesn’t just refer to physical notes and coins, it means all the money available to you, even if some of it’s in a bank account or elsewhere.
But how are you supposed to keep track of it all? In this article we’ll explain why cash and cash flow are important in a business, and how to make sense of your cash flow statement.
Cash flow describes the way funds move in and out of a business over a specific period of time. It tracks incomings and outgoings, giving you a clear picture of your business’s finances.
Managing your cash flow is all about timing, because it will help you make sure you pay your bills on time.
Monitoring income is obviously a big part of this, but it’s only one part of your cash flow, and doesn’t tell the whole story. Your cash flow statement has the answers.
A cash flow statement is a summary of your business’s cash flow, showing everything you expect to come in and go out over a set period of time.
Your cash flow statement ultimately helps you as the business owner to understand what funds are actually available at any given time.
You look at all the money coming in according to your sales report, and decide to buy a new machine for the workshop. But your cash flow shows the money leaving your business at the same time.
You realise the money you’re getting in is already committed elsewhere, so you can’t spend it on a new machine just yet.
The fact is, no matter how big or small the business, managing cash flow is critical –especially if there isn’t a lot of cash to work with in the first place.
On the other end of the spectrum, even if you have an abundance of cash in your business, monitoring its flow will help you use those funds in the most efficient way possible.
A cash flow statement gives you a kind of bird’s eye view of your business’s finances and allows you to look at everything in the cold light of day. It basically shows your ability to meet your obligations, which in turn will help you time any spending.
It’s also useful for potential investors, as it (hopefully) provides tangible proof of your ability to turn a profit.
Good bookkeeping habits are the foundation of any kind of financial reporting. We’re not just saying that, and we say it often.
Bookkeeping software (yep, like Pandle!) does make the process easier with financial reporting tools built in, turning your transactions into up-to-date cash flow reports.
A cash flow statement is typically divided into three sections and shows cash relating to:
Monitoring your business’s cash flow via cash flow statements will ultimately help you get to a place where the majority of your business’s cash is coming from operations (meaning general sales).
While you can buy and sell assets and take money from investors (especially in the beginning), this might not be a sustainable strategy long-term.
Learn more about using Pandle to make business accounting easier. Create an account today and decide what to do with all the extra time you get back.
A content writer who enjoys writing in a way that’s fun and engaging, while still being informative and useful to everyday people. I also enjoy writing creatively.
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