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.
Core Future Growth Blog
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.
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.