Before we discuss the purpose of a cash flow statement, let’s first discuss what it is. The three sections of the cash flow statement are operating, investing and financing. There are two methods to use when preparing your cash flow statement, the direct method and the indirect method.

There are three major cash flow activities in each business. These consist of Operating, Financing and Investing. You’ve heard these terms before, but you’re not clear about how they appear in your small business. After all, you don’t have investments and you’re running your business with credit cards and a small line of credit.

Working with small businesses for the last 20 years has brought with it some very interesting experiences. One of the most common experiences is the cash flow management mistakes that business owners make. You might think that only the inexperienced business owner have these near death experiences with their companies, but I have worked with some very experienced, very savvy business owners who have made these very same mistakes.

I’ve been thinking about all the noise and distractions we have in our lives and I have begun to question how much do we REALLY need? One thing I did for myself was to cancel a few magazine subscriptions that I never make the time to read. I say “make” the time, because if I was truly interested in the content, I’d make the time. (I read a good portion of my day, every day). I then started to wonder how I could apply the concept of eliminating noise from my business, when I realized that in the capacity of a CFO For Hire, it’s what I do naturally for my clients.

I read a post recently on my friend Jean Summit-Riker’s blog titled Lighten Your Journey with Laughter where she has this great image of Mother and Baby turtle. The baby turtle is saying to its mother “Are we there yet? Are we there yet?” The statement “Are we there yet?” reminded me of so many business owners I’ve known over the years, particularly when on the eve of a large project. But I've found that doing a financial review throughout the project can help put your mind at ease.

My friend Susan Baylis at Medical Account Solutions lays out some important points of lost profits in medical office billing processes in her blog “Maximize your medical receivable with a few simple steps”. It’s important in all types businesses to have solid processes in place for billing as well as collecting. Part of cash flow management is having proper training and support in place so that the staff can be successful in protecting precious profits for your business.

A client called me with their ideas for a new product line along with the statement, “We are going to sell widgets to all the widget providers and we aren’t going to focus on the direct sale anymore.” Considering this has been the company’s core business, I took this idea in and said “interesting, and how are you going to cover the time it takes to get this new endeavor off the ground?” Considering that I am tasked with their cash flow management and vendor relations this is a very personal topic for me. Also considering that the cash flow is at a trickle these days, any delay in payments could be devastating for this particular CEO.

Every business owner must know their numbers. I know, I know… you hate to look at the numbers, it’s boring. But really, is that an excuse not to look? How can you make effective, informed decisions without knowing your numbers? Can you answer the following questions without too many manual calculations? Is this information easily accessible on demand?