Where Did My Cash Go?

A question many small business owners ask themselves way too often.  In this column, I have written about the balance sheet and the income statement as financial tools to help entrepreneurs manage their business.  But what if that entrepreneur could predict how much cash would be coming in to and going out of the business on a monthly basis? Or better yet, be able to look further months down the road and have an idea of the in and out flow of cash?

 What is a Cash Flow Statement?

This final of the big three financial reports is called the Cash Flow Statement. This report shows the cash received and paid out on a time specified period as related to the business’s revenue and expense categories found on the income statement. This report is very helpful for startups.

A simple analogy of this report would be to look at the business checkbook where each deposit and withdrawal is recorded. The cash flow report does the same thing except it groups the in and out flows under categories.  By doing this, the owner is able to see monthly trends by categories and annually start to adjust for seasonal variances. 

The Cash Cycle

This report also helps the owner stay on top of the business cash cycle – the time lapse from when money was spent to generate sales till the revenue from sales comes in to the business. This cycle could be days, weeks, or months, but it shows the owner if additional cash is needed to cover expenses until sales revenue comes in from the sales related expenditure.

The cash cycle sounds easy but the devil is in the details. The owner will need to be diligent in tracking the cash flow in and out of the business on a regular basis.

For more information on this final top three financial small business statement or questions, feel free to contact Richard Proffer, business development specialist, at 573-243-3581 or email him at profferrd@missouri.edu.