Evaluating Your Small Business Through Your Cash Flow Statement

A business income statement is a document that shows net income, while the balance sheet shows the amount of cash you have on hand. The cash flow statement shows you where your income is coming from and where it is going, which makes it useful for your day-to-day business operation.

Cash Flow Statement

The cash flow statement offers three sections: Operating activities, money spent on and earned from operation, investing activities, money spent on and earned from investing, and financing activities, showing money received and distributed to finance sources.

Other Important Information

The cash flow statement shows a lot of information that is important to be aware of. If this isn’t something you look at regularly, you may want to reconsider it. We’ll go over some things it can help with below.

Investors like to look at businesses that generate a lot of money on a consistent basis. That means banks will look at your financing section in detail to see how you have previously handed repayments.

If a business has extra cash available, it may be more profitably used to buy new equipment or assets. Even if that’s not the case, moving it to an interest-bearing account is a good option.

Too much inventory can also look bad. Improve your cash flow by maintaining the right inventory levels for your business.

If your customers take too long to pay, you can shorten that cycle by following up on overdue payments right away, invoicing immediately after a job, and offering discounts for early payments.

You can also conserve cash by paying bills as late as possible without getting a late penalty. You can also negotiate with your suppliers for better terms.

Each of these things on its own can cause a change to your cash flow statements. But the most important thing is to be constantly aware of what these documents are saying to you.

Learn More About Evaluating Your Small Business

If you are interested in learning more about evaluating your documents, we would be gracious to offer you help. Please get in contact with us at Muth Capital at 914-999-2855 at any time for more information.

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