Five Effective Tips on Understanding Your Cash Flow Statement

As business owners and entrepreneurs, it's crucial that you understand your records - where your business stands financially.

Although income records are a good indicator of a business's status, your cash flow is also essential. Businesses need cash to continue operating smoothly.

To run a successful business and create a killer growth strategy, you first need accurate records, and of course, you need to know how to interpret it.

Here I will provide five tips on making your cash flow statement easy to understand, so business owners don't get overwhelmed when looking at it:

Tip 1: It's vital that you review your cash flow statement weekly, at a minimum monthly!

Along with your cash flow statement, you should be reviewing your net revenue statement. These are two different statements. Many get confused!

Viewing this more frequently, as opposed to quarterly every tax season, reduces the burden on you or your business manager and allows you to see how your business is doing real-time.

Tip 2: Your cash flow statement favors your personal checking account!

Like bank records, your statement must have beginning cash, cash-in, cash-out, and ending cash.

Tip 3: Your ending balance in one month is your beginning balance for the next month.

This is pretty straightforward since you want your records to flow smoothly from one month to the next.

Tip 4: If you do not use the accrual accounting method, START NOW!

This allows you as the business owner (and/or your business manager) to view the cash flow statement from a "bigger" perspective. You are able to see future AR/AP for a "sneak peek" of what cash flow will look like in the future!

Tip 5: Keep a tight lid on expenses.

Conserving cash is a way any business can thrive in any economy! It would be best if you had enough to prepare for unexpected business expenses.

Hopefully, these tips are helpful to you as a starting business owner. Understanding your cash flow statement leads to better managing cash flow and being confident for anything that may come your way.

How does your cash flow statement look right now?

If you need help in starting your business and understanding accounting records, feel free to connect with me!

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