Cash flow headaches and how to avoid them

Christiana Mbazigwe, Duric Business Solutions, Toronto, ON, CYBF Mentor

Preparing and managing a cash flow statement can be challenging for business owners or entrepreneurs without strong book keeping or accounting skills. Major ‘headaches’ can come from deciding which method to use to the cash flow in and out of the business. The month-by-month analysis can be time consuming and is prone to errors, which may require you start all over again.

Technical expertise is helpful to ensure you produce a cash flow statement without mistakes. The easiest method is to observe and use the changes in the balance sheet items to generate a cash flow. Follow the principle that any increase in assets in the balance sheet shows a decrease in cash which involves cash disbursement or cash outflow. On the other hand, increases in liability (e.g. loans and equity) increase cash inflow.

One way to avoid the headaches is to hire or consult an expert or look for a charitable organization that can assist you free-of-charge or at a subsidized cost. Alternatively, if you’re good with numbers, you can also learn to prepare and use a cash flow statement yourself. Building and updating your knowledge and skills in cash flow management will be financially and personally rewarding and help you avoid cash flow headaches.