Financial Insights | February 21, 2012
Christiana Mbazigwe, Duric Business Solutions, Toronto, ON, CYBF Mentor
There is a philosophy that says, in business, ‘the customer is the king’. Your business is created to serve your customers’ needs and wants. As such, no customers means no money (cash) and no business. The cash can be in form of immediate cash-at-hand or accounts receivable, which is convertible to cash as soon as the debt is paid.
Cash is the lifeblood of a business. The financial statement that records cash transactions is called the cash flow statement. It shows a detailed or summarized report of the inflow and outflow of cash in a business during a trading or accounting period.A cash flow statement is one of the key financial statements for efficient business financial management. A negative net cash flow is usually presented in parenthesis (xxxxx). This means that the business’ expenses exceeded its income during the transaction period. A positive net cash flow shows the reverse.
Basically, the cash flow statement is a lending/borrowing and investment instrument and critical when the business is seeking funds for business operations or needs capital to grow. From the cash flow statement and its underlying assumptions, an expert, investor or lender can quickly understand and predict the business manager’s spending behavior and ability to make good financial decision in cash management. A healthy cash flow is a key indicator that the business is being properly managed by a healthy entrepreneur.
It’s important for the entrepreneur or business owner to have a good understanding of how to prepare and interpret a cash flow statement.If you feel you could enhance your knowledge of cash flow statements, check out online resources or talk to experts. Make sure you know the language, content, implications of your business numbers, and also understand the messages that your cash flow statement is conveying to others.