The 3 Financial Statements Small Business Owners Should Understand Part 3. Cash Flow Statement

This is the last part of this blog series. I hope it has been interesting and informative so far. The reason this statement is last is because it builds on the balance statement. In this final part we are taking a look at the cash flow statement.
 Primarily, the point of the cash flow statement is to monitor cash coming and going from the business. The best part is you can use your newfound knowledge of the balance sheet to understand cash flow. Since any changes in your assets or liabilities will affect your cash flow statement.

The statement is divided into three parts:

1. Operating Activities: These include cash activities related to net income. Revenue and expenses are related to net income so examples would be the sale of goods or cash paid for inventory.
2. Investing Activities: These include cash activities related to non-current assets. Which are things like equipment and long-term investments.
3. Financing Activities: These include cash activities related to non-current liabilities. Which are things like long-term debt, stock sales, and dividend payments.

 Your cash flow statement is important especially the operating activities. Your operating activites are the daily operations of the business. Watching this carefully can help you manage the cash flow generated by the ongoing nature of the business rather than you seeing a large increase in total cash flow that was a result of a one time sale or stock issuance that will inflate the number. 

 For example, let’s say you only look at the net cash increase at the end of every month. You see that this month you were in the green. Not a bad thing we can all agree, and you look at nothing else and make no changes. The next month you are losing money. Well the last month you didn’t notice the the operating activities were falling, and only because a large increase in cash from another activity propped the business up for the month. This is the importance of the operating activities. It shows how well the business can sustain itself through normal operations alone.