We’re all looking for ways to boost cash flow. And one of the best tools to do that may be under your nose as we speak.
That tool? Your financial statements.
It might seem simplistic, but the most effective business finance professionals achieve greater success when their passion for business is maintained by sound financial discipline — which grows from a sound understanding of your financial statements.
This is the advice Gail Perry, CPA and publisher/editor-in-chief of AccountingWeb, gives for boosting cash flow. She says the three main financial statements you should be working with are:
- income statements
- balance sheets, and
- cash flow statements.
Look to cash flow statements
Perry writes that cash flow statements are perhaps the most important for small businesses to pay attention to. That’s mainly because the cash flow statement combines info from the two other statements: operating activities (from the income statement) and changes in balance sheet accounts. This shows how cash is flowing in your company and accounts for profits and losses, as well as “working capital” changes.
This could include fluctuations in current assets and current liabilities, such as accounts receivable and accounts payable, two important metrics to determine the health of your business.
Specifically, the “cash flow operations” portion, she writes, is the most important part of the statement. It’s the figure that best represents how much cash a company is generating from its core operations.
The main thing these statements should clarify is the fact that managers need to manage their working capital accounts to maximize cash flow. That means not just looking at cash flow, but how all of the information from your statements are working together. Once you get a handle on that, cash flow can be examined at different angles — which can only help.
Has close attention to financial statements opened your eyes to anything in your company? How do you best utilize these resources? Let us know in the comments.
