Providing a snapshot of your business

A cash flow statement is one of the most important tools and reference points that a business can have. It helps the business owner to track the flow of their business’ money.

Every business, financial product and project has money coming in and out. This movement is known as cash flow, and it is a key measure of a business’ health. A cash flow statement provides a snapshot of a specific and limited period of time and tracks how a company is doing and what its value is.

When information is needed about a business’ solvency it is generally the records of its sales or what is forecast for its future that is used to gauge its value.  A cash flow statement provides crucial information about whether a business has cash on hand, and therefore whether it will be able to pay employees and creditors. A lack of available cash often means that a business is unable to sustain itself or its operations, and can be used as a reasonable predictor of insolvency, or even of a future bankruptcy.

A cash flow statement is frequently the primary tool used by analysts trying to assess a business’s financial health and performance. Knowing that a company has a strong cash flow generally means that it will be able to sustain itself and grow in the future.

From an accounting perspective, cash flow is defined as the stream of both revenues and expenses and the impact that they have on a cash account.  Generally speaking, cash comes in from either operations, investments or financing, though donations and gifts can also contribute, particularly when discussing personal rather than business cash flow.  Whether discussing personal finance or business finances, cash goes out for either investments or expenses.

A cash flow statement, or statement of cash flows, provides a snapshot of cash flow in a specific period of time. Determining cash flow is done by taking noncash charges and adding them to cash taken in, less taxes. A cash flow statement can be prepared to reflect an entire business or just a single area of a business or specific project. It is considered to be an accurate indicator of how healthy a business is financially.

If you need help preparing a cash flow statement, or with any other area of your business’ accounting or financial reporting, contact us at (513) 713-1152 for a convenient appointment.