WHAT TO EXPECT

Our specialist will introduce you to the cash flow statement and its importance for financial management. Through the worksheet will guide you through the construction of a cash flow statement for your business.

 

WHAT YOU SHOULD KNOW BEFORE GETTING STARTED

 

What is a Cash Flow Statement?

 

For your business, the cash flow statement may be the most important financial statement you prepare. It traces the flow of funds (or working capital) into and out of your business during an accounting period. For a small business, a cash flow statement should probably be prepared as frequently as possible. This means either monthly or quarterly. An annual statement is a must for any business.

 

A cash flow statement can be used to assess the timing, amount and predictability of future cash flows and it can be used as the basis for budgeting. You can use a cash flow statement to answer the questions, "where did the money come from?" "Where did it go?" A loan officer will use cash-flow analysis techniques to evaluate the firm's ability to generate cash to repay a loan. A cash flow statement is also a key to understanding the investment and financing philosophy of a borrower. It will be used by your banker to answer the question, "Does this company have enough cash to make payments on a loan?"

 

There are various rules governing how information is reported on cash flow statements, as determined by generally accepted accounting principles (GAAP). While your business may not be a public company, a cash flow statement is still important to measure and track the flow of cash into and out of your business.

 

Cash flow is not the same as net income. Cash flow will not match the amount of net income shown on your profit and loss (P & L) statement. This is because net income includes noncash items, such as depreciation. And also because net sales are sales not cash payments.

 

Our Specialist will show you how to adjust net income to compute cash flow.

 

We recommend using three categories to organize cash flow data: operating activities, investing activities, and financing activities. However, there are two possible approaches to reporting cash flow from operating activities: the direct method and the indirect method.

 

You may want to consider the following questions before you start:

 

Do I have a record of what was paid to suppliers and employees during the time period being examined?

YES NO

 

Do I have a system to record sales or other revenues that flow into the business?

YES NO

 

Do I have an income statement and a balance sheet for the same period for which I am constructing the cash flow statement?

YES NO