If you are a small business owner, it is imperative for you to become financially literate. You also need to become very conversant with financial accounting language and terminologies for periodic reports on your business as a going-concern. You need this knowledge to deal with banks, financiers, customers, suppliers, business partners and even regulatory authorities. Since money is generally regarded as the live-wire of any business, one of the most important reports you need to watch the health of your business is the cash flow statement.
The cash flow statement is one of the primary financial statements used in small business operations. The statement is an analysis of the sources and uses of cash by the business. A cash flow statement serves to illustrate the amount of cash the business generated during the reporting period. It also details the cash used in the period under review. It helps the business owner to see how and where the money is going. As a small business owner, you do not need to know all the technicalities of a cash flow statement. That is the business of professional accountants. It is enough for you to know where to find relevant information in a cash flow statement and what the information portends for your business. These 4 salient parts serve that purpose adequately.
01. Information on Investment Activities. This is the part which shows the details of all investment activities in the business. All the investments of the business show under this section. Details of purchases or sale of property, equipment and plants show here. This part also shows all the long-term investments in vehicles and other capital items like equipment and plants, land and buildings and all tangible and physical items procured for the business.
02. Information on Financing Activities. This part shows the information on the financing activities of the business. It shows what went into the business and from which source. Loans taken for the business show in this part.
03. Information on Operating Activities. This part shows details of the cash received and used during normal operating activities of the business. It clearly shows the relationship and regular interplay of the current assets and current liabilities of the business. Details of accounts payable, accounts receivable, prepaid insurance and even unearned revenues are found in this part of a cash flow. When the business sells products or services, the transactions show here.
04. Supplemental Information. In this part of the cash flow, you will find any information which relates to interest earned on all interest-bearing accounts or the amount of income taxes paid in a reporting period. This part is also used to record any significant exchanges like stocks exchanges which do not necessarily involve direct cash transactions. Even though many small businesses may not record stock, it is helpful for the owners to know what information to look out for in this part if they see a cash flow statement.
Some finance experts hold the view that "profit" does not always give a useful or meaningful picture of the operations of any business. Many people who read the financial statements of businesses are at times misled by reported profit figures. A cash flow statement adequately takes care of that problem. That is what makes the cash flow statement a very useful tool which provides the overall picture of the financial health of your business.
Cash flow is one of the most vital elements in the survival of any business. It is either positive or negative and with that, it is able to quickly send out warning signals to the business owner. Is anyone still in doubt about the vital importance of a cash flow in the financial health of a small business?
Sule Yesufu, a Certified Speaking Professional, has been a Strategic Partner in S D Y Management Consult, a firm of Investment, Small Business and Entrepreneurial Consultants since 1999. He is a Published Author and a Newspaper Columnist. An expert in Small Business and Personal Development, he focuses on communicating his ideas and thoughts mostly through his Training Seminars and popular free blog. He offers useful tips on Self-Improvement, Personal Finance, Entrepreneurship, Current News, Politics and Business in Nigeria, the most populous and vibrant country in Africa. To learn more about Sule and to contact him for consultations and private inquiries, visit his website at http://www.small-business-management-tips.com
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The cash flow statement is one of the primary financial statements used in small business operations. The statement is an analysis of the sources and uses of cash by the business. A cash flow statement serves to illustrate the amount of cash the business generated during the reporting period. It also details the cash used in the period under review. It helps the business owner to see how and where the money is going. As a small business owner, you do not need to know all the technicalities of a cash flow statement. That is the business of professional accountants. It is enough for you to know where to find relevant information in a cash flow statement and what the information portends for your business. These 4 salient parts serve that purpose adequately.
02. Information on Financing Activities. This part shows the information on the financing activities of the business. It shows what went into the business and from which source. Loans taken for the business show in this part.
03. Information on Operating Activities. This part shows details of the cash received and used during normal operating activities of the business. It clearly shows the relationship and regular interplay of the current assets and current liabilities of the business. Details of accounts payable, accounts receivable, prepaid insurance and even unearned revenues are found in this part of a cash flow. When the business sells products or services, the transactions show here.
04. Supplemental Information. In this part of the cash flow, you will find any information which relates to interest earned on all interest-bearing accounts or the amount of income taxes paid in a reporting period. This part is also used to record any significant exchanges like stocks exchanges which do not necessarily involve direct cash transactions. Even though many small businesses may not record stock, it is helpful for the owners to know what information to look out for in this part if they see a cash flow statement.
Some finance experts hold the view that "profit" does not always give a useful or meaningful picture of the operations of any business. Many people who read the financial statements of businesses are at times misled by reported profit figures. A cash flow statement adequately takes care of that problem. That is what makes the cash flow statement a very useful tool which provides the overall picture of the financial health of your business.
Cash flow is one of the most vital elements in the survival of any business. It is either positive or negative and with that, it is able to quickly send out warning signals to the business owner. Is anyone still in doubt about the vital importance of a cash flow in the financial health of a small business?
Sule Yesufu, a Certified Speaking Professional, has been a Strategic Partner in S D Y Management Consult, a firm of Investment, Small Business and Entrepreneurial Consultants since 1999. He is a Published Author and a Newspaper Columnist. An expert in Small Business and Personal Development, he focuses on communicating his ideas and thoughts mostly through his Training Seminars and popular free blog. He offers useful tips on Self-Improvement, Personal Finance, Entrepreneurship, Current News, Politics and Business in Nigeria, the most populous and vibrant country in Africa. To learn more about Sule and to contact him for consultations and private inquiries, visit his website at http://www.small-business-management-tips.com
Follow Engee's Business Guide on Facebook and Twitter
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