Cash is the life-blood of your business.
It is how your business survives.
Without cash, you will not be able to pay your utilities, your subs, your materials bills. You will be unable to conduct business.
You must be always aware of your cash position, and have an idea of what is coming in or going out in the near future.
The cash flow statement is the document we look at to track cash. Most of the information in this statement is drawn from your checkbook or checkbooks. The random information that is in your checkbook is transferred, organized and presented in a meaningful format for your review.
(See a sample cash flow statement.)
The three major sources and uses of cash are Operation, Investing, and Financing.
Operations are the daily business transactions such as receiving a draw (IN), being paid for a remodeling job (IN), paying for materials (OUT), paying a utility bill (OUT), or meeting a payroll (OUT).
Investing is the expenditure of cash to acquire an asset. The cash comes out of the checkbook (Cash Flow Statement) to acquire the asset, and then the asset is listed on the Net Worth Statement. In accounting terms, you have decreased your cash but have not decreased your wealth by buying the asset. You have less cash, but only because you have converted your cash (which is one type of asset) to another form of asset. You have made your total assets less liquid, or spendable, but since cash earns very little or nothing, and the investment asset should have some return attached to it, the assumption is that you have increased the earning capacity of the company.
Financing is acquiring cash by borrowing. You will bring cash into the business, but will create an off-setting debt to do so. The cash that comes into the business will flow through the Cash Flow Statement. The debt that you created to get the cash will show up in the Debts (Liabilities) section of the Net Worth Statement.
Is my business going to survive?
Do I have more cash coming in than going out?
The Cash Flow Statement provides those answers.
View the Cash
View the Cash