Businesses of all sizes often overlook cash flow statements, which are one of the most important financial statements for a business. This is true for the largest conglomerates to the smallest of local businesses. These statements can be as simple as a one-page analysis of receipts and expenditures for a specific period of time.
A cash flow statement is not only concerned with the amount of the cash flowing in and out of your business but also the timing at which things flow. Depending on your cash position it can be necessary to log this information for a time period as short as a month or week.
A common misconception exists that because you have more money going out than coming in for a period of time you will certainly run out of cash. If you have a sufficient cash cushion at the beginning of a stretch where cash flow is negative you can survive.
Conversely, a business can be profitable and still run into trouble due to cash flow Issues. Most ramp ups of significant new business create a period of time of negative cash flow. This occurs because new business often involves investing in additional inventory and carrying additional accounts receivable. And these expenditures will usually occur before the corresponding invoice goes to the customer. This situation is further exacerbated when the new customer doesn’t pay timely.
Kehlenbrink, Lawrence & Pauckner, CPA’s has offices conveniently located in Indianapolis and can forecast and evaluate your company’s current financial condition, estimate financing requirements and track and improve cash-flow for just about any business. We welcome your thoughts and questions in the comments.
