Cash Flow Statement

A cash flow statement or forecast sounds pretty official, doesn’t it? For an artist or craft brewer, for instance, the idea of creating a cash flow statement might sound like a really big deal if they’ve never had exposure to basic accounting or bookkeeping classes in high school…or ever.

And many, many people haven’t.

Although cash flow statements are all about numbers, they aren’t that scary. Cash flow statements are incredibly useful and necessary for every business. We just have to do them (or have them done for us) so let’s find out a little bit about them.

So, what is a cash flow statement?

The simple answer is that it’s a document – usually a fluid spreadsheet of some sort which is continually changing. It shows the amount of cash that is coming into the business or is expected to come in and the amount of cash that is going out and is expected to go out… and when.

Basic math: If outflows are higher than inflows…you need to pay attention. And that’s the beauty of it. It’s basically a predictive tool which helps you manage your finances. Every business needs to manage finances if they plan to stay in business.

When you look at your cash flow statement you can see when you might be heading for trouble. Lots of businesses have to ‘rob Peter to pay Paul’ to coin an old phrase, and they might even have to do it several times throughout the month or whatever the period may be.

That is just to say that, in many small businesses, there is usually quite a bit of juggling of finances done throughout the period.

The key is to keep the cash flow statement up to date and to be meticulous with recording and updating for every single inflow and outflow – actual and expected.

Let’s say the cash flow statement is prepared and the picture is not good. The first question would likely be “how did this happen?” usually followed by “what are we going to do about it?”

The first question is the one we can help you answer now. The second question is something you’ll have to figure out after you know what happened. 

Usually, if you have a viable business and you are confident in the future of the business, then the reasons for an unimpressive cash flow statement might be things like…

    • Inconsistent pipeline – sales are up and down.
    • Disorganization – no one is keeping track of transactions on a regular basis.
    • Failing to reconcile and analyze accounts – you don’t really know what you’re paying for or if  you should be paying for it.
    • Overdue accounts receivable – some customers aren’t abiding by your payment terms.
    • Failing to plan for emergencies – when you’re not prepared, bad things can happen.
  • Let’s take a look at these five possibilities:

  • Inconsistent pipeline.

If your sales are good but not steady during a specified period, you are dealing with an inconsistent pipeline. This is when your sales are great one month and terrible the next and so on. Overall, your sales are what you expect but timing is off.

Or perhaps there is a hole in the pipeline because marketing or sales took their eye off the ball. In that case, you can do even better. You would need to figure that out.

If your business is subject to huge swings due to seasonality that would result in an inconsistent pipeline also. Companies can stay in the red for months and then finally move into the black during one season… or even one month within that one season. If your business is subject to  seasonality at least you know what you’re dealing with and you can make the proper financial arrangements to get you through the lean times.

In any case, the good news is that some juggling and a good relationship with your bank or other financier should make it all work out.


  1. Disorganization and poor record keeping.

Even though we humans all mean well and we want to get to those pesky accounts, invoices, receipts, etc. there just never seems to be enough time.

Frankly, even when there is time, there is often lack of enthusiasm for tackling paperwork and record keeping.

Add to this the fact that it is so easy to lose track of paper receipts, incoming mail, and even monthly charges incurred on credit cards or from your merchant accounts, and your tendency for disorganization can spell disaster.

Records simply must be properly kept. Quite apart from your cash flow, remember that you need records in order to make deductions. At tax time any lost or improperly recorded business receipts or charge records result in fewer tax deductions and higher taxes payable. Most people want to avoid that scenario.


  1. Failing to reconcile and analyze accounts.

Reconcile and analyze accounts? What?

In this case, we’re talking about accounts that you use to make purchases – where you incur expenses. If you keep good records, then you can reconcile your bank accounts, your credit card statements, your merchant statements and statements for any other account you may have.

You review each item. You check to ensure they are all legitimate expenses, etc. When you’re finished you should have a good idea if everything is in order.

For the purposes of this article, this is an oversimplification and, if you have a bookkeeper or accountant that person will be in a better position to do a thorough reconciliation and analysis and keep you well informed.

But here’s the key:

Regardless of how, or who does the actual work, you – the business owner – must be aware of every penny that is going out of your business. Do it yourself or have someone reliable do it for you. If pennies are not closely watched…you may very well be being taken advantage of. You might be paying too much for something or paying for a membership you thought was cancelled, and the list goes on. Failure to reconcile and analyze will cost you.


  1. Overdue accounts receivable.

Show me the money!

When someone buys something from you with payment terms, they have a responsibility to pay you according to the agreed upon terms.

If you are the billing clerk and the accounts receivable clerk, there’s a good chance you are the collections person as well. You are not alone. Many business owners have to collect on unpaid invoices. It’s uncomfortable but necessary.

It is important to issue your invoices quickly and make sure you get all the details right, then keep close track of who owes you how much and when payment is due.

Now, it must be said that payment terms are often not adhered to. You will have to decide whether you are willing to live with that or not. Perhaps it depends on the customer. In any case, it will affect your cash flow so you need to stay on top of it. Or… you can hire someone to stay on top of it for you.


  1. Failing to plan for emergencies.

This is such a difficult one for a small business owner. If you barely have enough to cover the regular expenses then emergencies have a way of messing up the cash flow in a big way.

When you suddenly get hit with something that you absolutely can’t ignore then you have to find a way to deal with it. Of course, if you have a fund set aside for emergencies, then you won’t feel it so much.

Something to think about.


Bookkeeping Lead can do it all for you or they can do some of it for you…you decide.

 Book a no-obligation’ consultation with us so we can assess your wants and needs and give you a quote for services.


Bookkeeping Lead offers virtual bookkeeping & accounting services to small businesses looking to scale up their business while improving their organization efficiency.

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