Getting more from your Cash Flow Statement

01/07/2019

Every company should be preparing a cash flow statement as part of its financial reporting, but are you really getting the most value from it? We explored how you can take your statement from a tick box activity to an invaluable resource.

Let’s begin by recapping what you can actually expect to find in your cash flow statement.

The report provides a measure of how well your company manages its cash position, by tracking any cash or cash equivalents entering and leaving the business.

There are three main categories in the report: operating activities, investing activities and financing activities. Breaking down the cash brought in and used by each allows an easier comparison when it comes to reviewing different areas.

The operating activities section is probably the most useful, as it tells you how well your operations are running and shows you the actual figure that has been bought in by them.

Your cash flow statement can also be used by investors who are interested in how secure your financial situation is, and creditors who want to assess your ability to fund expenses and pay debts.

It’s clear to see the benefits that the cash flow statement brings, but like so much of the reporting you do it can be easy to become set in the way you make use of it.

We’ve highlighted three ways that you can get some real, actionable insights from your cash flow statement right now.

Pinpointing Issues

One way that you can get a great amount of use from your cash flow statement is pinpointing problems. This might seem obvious, but the mistake many companies make is that they don’t look into their reporting until a problem has already become evident within the business.

If you check your reporting consistently, you’re more likely to catch any problems before they cause major disruptions to your cash flow.

Some of the issues you should be looking out for include:

Too much inventory – It costs money to store as well as tying up your available cash, so keeping a close eye on how much inventory you buy is a must.
Customers take too long to pay – If you’re struggling with overdue invoices, take a look at our blogs on improving invoicing and tackling late payments.
Paying bills too quickly – Of course it’s great for your suppliers if you pay quickly, and it’s crucial to make sure you’re always within the agreed payment terms. But it’s also important to make sure that you’re paying at a time that works for your own cash position.

Missed opportunities

If you aren’t currently experiencing any cash flow difficulties, you may not feel the need to check your cash flow statement very often. But it’s not just problem solving it can help you with.

Keeping an eye on the report can make you aware of any excess cash available that could be better used or invested to grow your business.

By always having an idea of what you do have to hand you’ll be able to make more informed decisions and jump on opportunities that may have otherwise passed you by.

You’ll also be able to get a better idea of where you are and aren’t creating excess cash, and in the long run you’ll be able to make adjustments that mean more cash is available for expansion and innovation.

Better KPI’s

Closer monitoring of your cash flow statement can also lead to more beneficial KPI’s. For example, tracking excess cash could provide more practical use than tracking overall profit, as it is easier to break down into actionable points.

Tracking KPI’s from your statement as well as your other reports can help provide you with a full overview of what’s happening in your business and give you more insight into why you’ve seen changes in other metrics.

Remember, you’ll always get the most benefit from your financial reports when you look at them all together, so be careful not to ignore your income statement and balance sheet too as you look for new insights.

How often do you check your cash flow statement, and what do you use it for? Share your experience in the comments below!