As part of OnlineAdvisor’s efforts to educate, inform and encourage business leaders, we present key financial terms and concepts.  An important part of managing the financial matters for a business is the cash flow statement.

A cash flow statement is an important financial report.  It is especially important for those companies which have a short history.  It shows the company executives, investors, bank officials and other stakeholders how the company uses cash in an efficient manner.

Insight into the Cash Flow Statement

Samantha Novick does a great job to explain the importance of a cash flow statement and how we can use it:

A cash flow statement allows you to track the amount of cash your business has coming in, and how much it has going out — or simply put, the amount of cash you’ll have available to you — in a given period of time. If you’ve invoiced a customer, you shouldn’t be including that transaction in your cash flow statement until you actually receive the payment.

Ideally, you should be aiming to perform a cash flow analysis on a monthly basis to ensure you have sufficient cash on hand, and to prevent encountering problems like being blindsided by a cash flow crunch. By creating these statements regularly, you’ll be able to identify patterns in your cash inflows and outflows, and make more informed decisions in how (and when) you choose to use your cash.

Additionally, this is a report that investors, bank officers and other stakeholders will want to see.  They want to see how we manage our cash.  These people look for cash management patterns.  How fast it is moving in and out of the company?  They will want to see trends as well.  Where there are good reasons for cash shortages, it makes sense to ask for more cash.  If the reasons are bad, such as too many unpaid customer invoices, it makes sense to manage cash better.