Cash Flow Statements are one of three key financial statements entrepreneurs need to review on a regular basis. Reviewing these statements help entrepreneurs to understand the health of their business. The statement measures how well a company manages its cash position. It paints the picture of how a business generates cash to pay debts and fund ongoing expenses.
Cash Flow Statements show entrepreneurs where money is coming from and where it is going. These statements are critical to understand what products or services are generating income for the business. They also identify where cash leaks exist to help business owners identify expense issues to fix. Reviewing these statements help entrepreneurs understand if they are in a good position to expand operations, purchase equipment, reduce debt, or even acquire another business. Banks looks at these statements when consider lending to businesses.
What will business owners see in the statements?
- Operating activities – is money generated from doing business activities (products or services) and/or money spent on doing business (rent, wages, cost of goods, etc.)?
- Investing activities
- Cash from financing activities