Financial Processes: Your Cash Flow

07/28/2016 04:22 to watch
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Your cash flow statement shows where your cash is coming from, and where it is going. Sometimes known as “sources and uses of funds,” this financial report is an important complement to your income statement and balance sheet. Investors want to see that you know the difference between your net income and your net cash flow, and that you understand how your business uses cash.

Suggested Readings

Founders School || The Art of Startup Finance || Financial Processes: Your Cash Flow || Impact Guide (PDF).

Berman, Karen and Joe Knight. 2008. Financial Intelligence for Entrepreneurs: What You Really Need to Know About the Numbers. Harvard Business Press.

After preparing your financial statements for several months (or quarters), you should sit down with a loan officer at a bank and get a banker’s perspective on your financial performance and on your credit worthiness. But just because a banker is willing to lend you money, doesn’t mean you should borrow money. It’s just good to know where you stand.

Questions for You

Do I have a good understanding of why my cash flow is different than my net income?

What are the most important drivers of our cash flow?

Can we afford to borrow money to accelerate growth? Does our financial performance show that we are credit-worthy in the eyes of a banker?

Do I have a good bookkeeper/office manager who stays on top of the details?

Questions for Your Team

Are we managing our receivables and payables as efficiently as possible?

How can we improve our cash flow?

Tools and Exercises

Exercise: Using the Balance Sheets for the last two quarters, calculate your Cash Flow Statement for the last quarter. By doing the Cash Flow Statement calculations yourself, you will get a much better understanding of what the numbers really mean.

Exercise: Once you have prepared your own Cash Flow Statement, identify the most important sources and uses of cash in your company, and then make sure you focus on those going forward.

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