You need it to start, operate, and expand your
operations, but many small business owners often have trouble managing and
maintaining cash. Inaccurate cash flow analysis - or lack of available cash -
can affect the everyday operations of your business and your eligibility to receive a loan.
Cash flow is the movement of money in and out of
your business. The process includes:
An effective cash flow system will help you
manage funds to cover operational costs and bills and help you foresee potential
problems in the
Profit and loss statements and income statements
can be used to determine projections for future cash flow trends of your
business.
Cash flow analysis statements are generally
separated into three parts:
- Operating activities: This section
evaluates net income and loses of a business. By assessing sales and
business expenditures, all income from non-cash items is adjusted to
incorporate inflows and outflows of cash transactions to determine a net
figure.
- Investment activities: This section
reports inflows and outflows from purchases and sales of long-term
business investments such as property, assets, equipment, and securities.
For example - if your bakery business purchases an additional piece of
kitchen equipment, this would be considered an investment and accounted
for as an outflow of cash. If your business then sold equipment that was
no longer needed, this would be considered an inflow of cash..
- Financing activities: This
section accounts for the cash flow trends of all money that is related to
financing your business. For example: if you received a loan for your
small business, the loan itself would be considered an inflow of cash.
Loan payments would be considered an outflow of cash, and both would be
recorded in this part of the cash flow analysis statement.
Making cash flow projections and computing cash
flow statements can be confusing if you have never managed these types of
finances before.
Ask your
business accountant or contact a business.
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