In this post, you will understand what a cash flow statement is, how it should be done, what its purposes are and what advantages it can bring to your organization. Check out:
What is a cash flow statement
The cash flow statement is a financial and managerial tool that allows, in addition to organizing your finances, obtaining valuable data for the managerial decision-making process. In its elaboration, the values of cash and equivalents must be taken into account.
Cash equivalents are amounts available in checking accounts and short-term investments. In addition to the money itself, these amounts are taken into account because they can be easily converted into cash if necessary. An essential care at this time is to separate your finances from the company’s finances, as this asset confusion can confuse the good management of your company’s capital.
Still in the composition of the cash flow, two important elements are the inflows and outflows. The inputs, for the most part, are related to receipts from customers, and the outputs are payments made in your company, such as those related to the purchase of goods, payment of various bills, taxes and other amounts that are part of your routine.
Preparing the cash flow
Creating an efficient cash flow starts with using good integrated management software. This intelligent and differentiated solution allows the integration of information from different departments and the easier, faster and more objective completion of your cash flow statement.
After separating a cut-off date for the start of its operations, it is necessary to start recording all the financial movements of your company. After entering the initial balances of your cash and cash equivalents and the due recognition of all inflows and outflows, it will be possible to determine the cash flow, or even the value of your company’s cash in a given period of time.
Care in the preparation of the cash flow statement
In addition to relying on the use of integrated solutions that optimize your tasks, keep an eye on the daily update of your cash flow. The insertion and periodical control of all transactions are essential for you to know the real situation of your company. Only an up-to-date cash flow statement allows you to know if the company has surplus funds or if there is a need to raise funds from third parties.
Implement in your company’s routine the checking of all statements, cash on hand, billing and receipt reports and cross them with your cash flow balance, checking if the balances are in agreement.
Another essential precaution is the detailed record of all financial transactions. The histories must be as complete as possible, as this information can be used when there is any doubt or question regarding your financial transactions. All amounts that go through your financial handling should also be recorded, as the objective is to recognize exactly what were the changes in your cash.
Advantages of using the cash flow statement
The cash flow statement has several advantages in its use. The initial and most visible one is the financial organization, since this statement, if well implemented and updated, allows you to know how your finances are going on a daily basis. This up-to-date knowledge makes it possible to know, for example, if there are defaulting customers and allows the necessary steps to be taken to receive them.
Still thinking about the financial part, it is possible to avoid fines, interest and other problems that may arise in the event of late payment by your suppliers, which will be avoided with the daily verification of your payables. Thinking from a managerial point of view, your cash flow can be categorized, that is, both your expenses and income can be grouped by category.
Creating categories allows you to know, in the case of expenses, where your company’s money is going, which expenses have increased or decreased and, if necessary, which ones can be cut, reduced or replaced. In the case of recipes, it is possible to find out which are the best-selling products or services and who are your main customers, among other data.
Based on both your inflows and outflows, you’ll be able to create special promotions, know your lowest and highest sales seasons, and create reservations and strategies for tough times. This data can also be used in the cash flow projection, which is an anticipated view of the future and how your company will be in relation to financial resources in a projected period.
For good management of your cash flow, you also need to manage inventories, as they play a key role in the good financial health of companies. In organizations where stock is stopped for a long time, there may be a lack of resources and even losses with goods stopped. In those where there is a lack of merchandise for sale, there may be a loss of customers and, consequently, of money for the company.
Therefore, knowing your operational cycle, that is, how long it takes between purchasing goods, selling them or using them to provide services and receiving them for these sales is essential. Try to maintain a balance between minimum and maximum amounts and, with the updated cash flow, also try to balance the relationship between your terms of receipts and payments of securities, which is essential for you to have available resources.