If you are looking into lower than expected profits, start with your tracking and financial statements. Whether or not your business uses the 3 statement model for accounting (i.e., a linked income statement, balance sheet and cash flow statement), you must create an accurate cash flow statement if you are to understand the ebb and flow of expenses and earnings.
Cash Flow Explained
Of course, before we can understand the “statement”, we must understand the term itself. The net amount of cash (and any cash equivalents) placed into use by the business, as well as those transferred out of that same business is what experts describe as their cash flow. As one expert explained, “a company’s ability to create value for shareholders is determined by its ability to generate positive cash flows…” and this is displayed by accurate Statements of Cash Flows).
The Statement Explained
To demonstrate the amount generated as well as used over the course of a specific period (day, week, month, and so on), the Statement of Cash Flows is created. It features statements relating to the business’ operational activities, investing, and financing. The total amount of cash used by and generated from these activities is tracked and totaled. The combining figures are then compared against the statement’s opening cash balance to determine the bottom line, and this is juxtaposed to the net income.
The Benefit of Tracking Flows
The reason for tracking of flows of cash into and out of a business in this way is quite simple – it shows how well any company is operating. It demonstrates the accurate amount of income received via operations and allows a clear portrait of actual earnings. For example, you may see that your flow is substantial but net income not where you would like it to be. By analyzing the statements, you can see weaknesses in operations, investing and so on.
Do you need help with cash flow issues? For example, would some flexible financing help you improve your bottom line? Simply contact Value Capital Funding online or by phoning 800-944-6280. You can speak with one of their dedicated experts and get a tailor-made solution to your needs.