Use a cash flow statement to keep your eye on your bottom line

When you're running a business, the “bottom line" isn't just a catchy phrase—it's one of the most important aspects of your company's finances. A cash flow statement, also called a statement of cash flows, is just one of the types of financial statements that can help you make sure your business is financially healthy and performing well—and continues to do so.

Just as its name suggests, a cash flow statement shows the amount of cash that is generated and spent in your business during a specific time period. This information can, in turn, tell you what you need to know about the liquidity of your company's assets, or how much cash you have available at any given time.

Below is some basic information about cash flow statements and how you can use them to your advantage in your business.

Parts of a cash flow statement

There are three main parts to a cash flow statement, which may be kept monthly, quarterly, or yearly:

• Operating activities. These activities include those that earn revenue for the business. Operating cash flow activities generally include everything concerning sales, manufacturing, marketing, and distribution. Payments to suppliers and employees as well as taxes are included in operating activities.
• Investing activities. This section of the statement concerns buying and selling, or other disposal, of long-term investments that do not have cash equivalents. Some common examples are the buying and selling of property and equipment.
• Financing activities. Changes in the equity capital or borrowing position of your business fall under this section of the cash flow statement. Buying and selling shares, as well as issuing more stock and taking out or repaying bank loans, are examples of financing activities.

Cash flow analysis

Keeping cash flow statements allows you to compare the difference between your cash flow and net income. These numbers are different because your net income takes into account all revenue and expenses, whether or not these transactions have actually been received or spent yet. The cash flow statement, on the other hand, is a reflection of the actual money going through your business at a particular time.

With this cash flow information in hand, you are better equipped to see where your business is spending and receiving money and to make sure you always have available the cash you need to grow your business. This analysis is critical to your company's success because it also enables you to predict your business's future financials as well.

If you're still not sure how a cash flow statement would be useful for your business or just want to know more about maintaining such a document, you may wish to speak with a professional. An experienced attorney or online service provider are two options for guidance on cash flow statements as well as other business reports.

It can be risky to move forward in your venture without fully understanding the importance of a cash flow statement. Making sure you pay attention to the bottom line along the way is one of the best ways to set your business up for success.