The Cash Flow Statement

cash flowThe legendary Lou Mobley once said, "You can operate a long time without profit but you can't survive one day without cash." The truth is, without positive cash flow, it doesn't matter how much profit your Income Statement might show. Every month, "profitable" businesses fail because they don't have enough cash. They grow broke! This is why the Cash Flow Statement is the most important of all financial reports.

One Small Problem

But there is one problem: Few businesses have this report, and many CPAs don't place high value on it. Why? Most accounting software programs do not generate a "direct" cash flow statement. The "indirect" cash flow statement that is compiled for most year-end financial reports doesn’t provide much practical help to the business owner in terms of concretely knowing or tracking his/her actual cash flow. Ask your CPA to help you produce this report.

A Direct Cash Flow Statement

A Direct Cash Flow Statement will show you three things:
  • Operating Cash Flow (OCF),
  • Investing Cash Flow (ICF), and
  • Financing Cash Flow (FCF).
Here's how it might look: Operating Cash Flow Collections (cash sales & receivables collected)$+____ Cash paid for inventory                                       $-_____ Expenses paid (MSG&A)                                     $-_____ Interest Expense Paid                                          $-_____ Income Taxes Paid                                              $-_____ Cash Flow From Operating Activites (OCF)   $+/-____ Investing Cash Flow Fixed Asset Investment                                         $-_____ Other Investments                                                 $-_____ Cash Flow From Investing Activities (ICF)        $-_____ Financing Cash Flow Money Borrowed                                                $+_____ Cash Paid In (e.g. stock sold)                            $-_____ Dividends/Owner Draw Paid Out                       $-_____ Cash Flow From Financing Activities (FCF)$+/-____ Summary Increase/Decrease in Cash (OCF+ICF+FCF)  $______ Begining Cash                                                 $______ Ending Cash                                                  $______ Tweet This With this kind of information, an executive or business owner can begin to analyze and project his/her cash flow. Every wise business owner should master this important report. For more help, ask your business coach or CPA.

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