Managing cash flow statements for positive balances

No responsible business owner wants to feel that their business's cash inflows and outflows are taking place unmonitored, so if you run a business and you're concerned that things are a bit out of control in this respect, using a cash flow statement could be a good solution.

"A cash flow statement simply tracks the receipts and payments of your business," explains Robert Warren of accountancy firm Edwards & Partners.

Of course, it's up to you to maintain the cash flow statement vigilantly in order to get the most out of it. The statements can be produced on a weekly, monthly, quarterly or annual basis, depending on the needs of your business.

The cash flow template

To create a cash flow statement you will first need to create a cash flow template. An accountant can help you do this.

The template should be customised for your business, and include the various expenses relevant to your operations. The cash flow template should be detailed enough to include all the necessary information, but not so detailed that it becomes unwieldy to use. 

What to include

A cash flow template should list any business activities resulting in cash flow. For example:

• sales – both cash and credit
• delivery of products
• proceeds of loans
• purchase of assets
• financing, i.e. cash from investors such as banks.

The template should be broken into revenue and expenditure sections, and should include both fixed and variable costs. You will then be able to work out the net cash movement.

Benefits of cash flow statements

• Along with other documents such as balance sheets, cash flow statements give businesses credibility and are an important source of information for financial analysts and potential investors.
• Cash flow statements greatly assist with budgeting.
• Cash flow statements make it easy to see whether there has been any change in the efficiency of revenue generation.
• A cash flow statement can potentially reduce the amount of tax a business is obliged to pay, as it shows what the company really has in terms of cash, not what it appears to have. For example, a business may have just landed a big contract, but it may not have received any revenue from this yet.
• The long-term survival of a business depends on its ability to successfully manage cash; cash flow statements can help with this by clearly tracking inflows and outflows.

Get organised

If you're serious about making a success of your business, using cash flow statements to track cash movement is crucial. To get one drawn up that suits your business down to the ground, contact an accountant today.