Do you feel in control of your cash flow or does the thought of it make you nervous, grumpy, and pray you’ve guessed right? By using your financials correctly, you can manage the process instead of having it manage you. Let’s talk about how you can use your cash flow statement to build or even save your business.
Understand Your Cash Flow Isn’t What the Bank Says
A well-planned cash flow statement will provide you with an accurate picture of your actual cash position, and not just what the bank balance sheet shows. That allows for more accurate forecasting, and guessing.
Live Within Your Means
Instead of spending randomly, or worse, living in constant fear of over-spending when you know your monthly expenses, get a good feel for what types of investments you can make. This helps you prioritize what you need and when you can afford to make a purchase.
A purchase should be based on your numbers and not the charm of the salesperson.
Prepare for the Unexpected
Integrating cash flow into long-term strategic plans allows you to avoid any impending financial icebergs that may sit just below the water. You can adjust if you have a big expense coming up, either accelerating collections or slowing down expenses.
Demonstrate Transparency
An accurate cash flow analysis can reassure lenders and investors, assuring them that you’re on top of your current situation. They may be more likely to work with you if you demonstrate awareness of your situation.
Track and Make Smart Moves
With an accurate cash flow analysis, you receive great insight into a new product or service that you’ve rolled out. You’ll determine how long you’ll stick with it if it begins to falter, or what kind of resources you’ll dedicate to it to make it grow.
Create a Habit
Not using previous financial history as you build new budgets is dangerous. You can use prior cash statements to track seasonality and adjust to ups and downs in your business.
The level of reporting you choose in the end is based on your current resources and your ability to tap into relevant data. Financial guru Lee Rust recommends a report that combines balance sheets and performance criteria, so you can eyeball significant trends or quick changes.
While these types of long-term forecasts aren’t entirely accurate, you should keep them and adjust them to short-term results. It will help indicate whether your goals are within striking distance, or if you’re heading in the wrong direction.
Can a cash flow analysis save your business? Like Smokey Bear says, “Only you can prevent forest fires.” While this analysis alone may not save the day, but it will surely help you spot the smoke.
Need help with your strategy? We’ve got the team to make it happen.