Where
Did My Cash Go?
It is 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?
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 start-ups.
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.
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 me, Richard Proffer, business development
specialist, at 573-243-3581 or email at profferrd@missouri.edu.
