We often hear the saying that “Cash is King” but have you ever actually prepared a statement of cash flow to see your current cash position?
A Cash Flow Statement gives you the ability to see the cash received during the period against the cash outgoings in the same period to show the overall movement on cash in the period.
This can have great benefit to your business as it enables you to see exactly where your cash is being spent, provides you with the information to manage cash more effectively and can ultimately help to ensure you have enough cash to pay all of your outgoings on time which results in much less stress.
Cash is so important to the long term success and growth of a business, as without cash you can’t pay your staff or suppliers, and relatively quickly you can find yourself owing Suppliers, PAYE and VAT.
In a recent survey conducted by American Express of 502 SMEs they found that a third of small firms that have missed a payment deadline have had suppliers withhold goods or services. Additionally 28% said their relationship with their suppliers had been tested because of their cash flow issues.
A sample cashflow statement
A sample cash flow statement is included below:
|CF Company Limited||31 March 2018||31 March 2017|
|Cash flow from operating activities||60,050||50,000|
|Net cash flow from operating activities||59,910||49,875|
|Cash flow from investing activities|
|Payments to acquire tangible fixed assets||(15,000)||(1,500)|
|Receipts from sales of tangible fixed assets||250||–|
|Net cash flow from investing activities||(14,723)||(1,475)|
|Cash flow from financing activities|
|Bank Loans received||(25,000)||–|
|Repayment of bank loans||(5,000)||(10,000)|
|Repayment of Finance lease obligation||(1,200)||(1,200)|
|Net cash flow from financing activities||(31,358)||(21,950)|
|Net increase/(decrease) in cash and cash equivalents||13,829||26,450|
|Cash and cash equivalents at 1 April 2018||(9,045)||(35,495)|
|Cash and cash equivalents at 31 March 2018||4,784||(9,045)|
It includes the separate headings for different activities where cash is received and spent – Operating activities (so your trading activities); Investing activities (so sales and purchases of assets) and Financing activities (so loans received and repaid).
Once you know your current cash position, and how it is made up, you can start monitoring your monthly cash inflows and outflows and potentially improve your cash flow by making a few small changes.
By being aware of when there are cash payments to be made, it can help to focus on when there is cash needed in order to cover those payments, to enable you to plan your cash more effectively ultimately resulting in less stress and better relationships with your suppliers.