Accounting, Cash

Statement of Cash Flow

Warning: This Blog Post may be a little technical. πŸ˜‰

Accounting Statements. Oh, the bane of most small business owner’s existence and the source of anxiety for the rest. Today, I want to talk you through understanding your Statement of Cash Flow and understanding what’s going on in your business.

First, the most important thing to remember and realize about any statement that you run through QuickBooks is this. If you have bad information in QB, you haven’t reconciled your bank statement, you have purposely left out information or you have neglected to look through the transactions or hire a bookkeeper, then you can leave now because this will NOT help you. It will be worse if you look at a statement with bad information and make decisions off of that than if you were to just look at your bank statement and make decisions that way.

Let’s assume you’ve reconciled all of your bank statements, you’ve included every business transaction, all personal transactions are marked as so and, as far as you know, all transactions are categorized correctly. This is when you can start making better decisions.

If you have QuickBooks Online, open up your file and look under Reports>Accountant Reports>Statement of Cash Flow. Choose fiscal year as the time frame. Run the report.

First, notice that it’s broken down into three separate sections. Operations. Investment. Financing. If you’re business is like mine that has no debt, then you won’t have the Investment section.

The first section is Operations. Operations is just that, the operations of the business. The service you provide, the product you make or the thing that you do for your customers. The financial information for this is in the top section. At the top you’ll see your Net Income (Sales-Expenses). After that, you’ll see some adjustments if you have Accounts Receivable or any short term loans that you paid.

In the next section, you will see Investing. If you have any stocks and bonds the business purchased, that activity will be included here. If you have any fixed assets (big machinery, things that you last you years to come), that information will be included in this section. If you pay down long term debt, that will be shown here.

The third section is Financing. This will vary based on how your business is set up. If you are a sole proprietor or an LLC, then you will see your Owner’s Drawings coming from here. If you are a corporation, you will see dividends and stock activity here.

Now that we know a little about each section, look at the Cash Flow from Operations. That is how much cash was generated in the time period (I’m assuming it’s a year) you chose from doing what the business does. Is that how much you thought it would be? Think through how many hours you worked on your business, did you work enough last year? How would adding one more client impact this number? Are you charging enough? Don’t be discouraged if this number isn’t what you were hoping it would be. You have 10 more months this year make this a better number!

Next, look at the Investing section. What kinds of fixed assets are in your business? Do you have too much invested here? Is it necessary to have all of the equipment that you do have? Are you going to have to replace some of this soon? You may want to start saving now if you do.

Last, look at the Financing section. This is where you see your Owner’s Drawings. How much did you take home last year? Did you hit your goal for what you wanted to support your family with? Remember, your business is here to serve you, not the other way around!

Set some goals around these numbers this year. Operating: how much will the business bring in? Investing: are you going to invest in more equipment or pay down debt? Paying down debt should be your first goal! Financing: what is the salary that you want to bring home? How are you going to double and triple that in the next few years?

I can’t give you all the answers to those questions, but I hope that you see the Statement of Cash Flow as a tool that you can use instead of a confusing accounting statement.

If you aren’t sure all of your numbers are correct, this is a great time of year to double check that! You can find an accounting professional in your area that you work well with, or I can help you make sure that your statements are complete! You can go to the Apply page and apply to become a DAC Client.

Do you understand the Statement of Cash Flow better now? Let me know what your questions are in the comments and I’ll do my best to help!



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