Bank Statements Of Company

Why cash flow statements are crucial to your business

Put simply, cash is the lifeblood of your business. Without a healthy flow of cash, your business will struggle to function. Your cash flow largely governs how much you can reinvest to grow your business and determines how much debt you may be able to take on. If you’re looking to improve your cash flow, you must ensure that you understand your financial statements and interpret them correctly. Doing so will yield benefits that could completely energise your business.

Understand where you’re spending money

Cash flow statements summarise the amount of cash and cash equivalents entering and leaving your business. Profits and cash are not the same and accurate cash flow statements are essential to help you understand where your company’s money is being spent. You cannot spend profits, but you can spend cash, so producing healthy profits does not necessarily mean the business is in a strong position. For example, a cash generative business can reinvest some of that cash to support growth without having to borrow money or take on additional investment.

Set better KPIs, budgets and targets

Having a clear understanding of your current cash flow is highly important when planning for the future. A detailed review of your cash flow statements, in conjunction with your balance sheet and profit and loss accounts, can reveal a lot about your business and help you create realistic budgets, targets and KPIs. It’s widely accepted that setting realistic budgets will increase the likelihood that your business will achieve your targets. A detailed analysis of your historic cash flow and other financial statements can show you the best KPIs to measure your ongoing performance, helping you to make continuous improvements to your business strategy and meet your targets.

Secure additional funding

Cash flow statements will support conversations with investors or lenders because you can show them the specific sources of your incoming cash and demonstrate where and how it’s being spent. If you need to access long term capital or borrow money, investors will engage a financial professional to review your accounts, business plan and cash flow statements. Ensuring that your cash flow is stable and has been for some time will reassure investors that you’ll be able to meet repayments. When investors have real-time numbers and forecasts at their fingertips, they are more likely to provide the capital you need.

Make better decisions

A cash flow statement can help you understand how well your company manages its cash and as a result, they can underpin your strategic decisions. Without interpreting cash flow statements correctly, you could be making bad strategic decisions without realising it. Every strategic decision should be based on accurate financial information and you need to understand the financial consequences at any given point to support positive strategic planning.

Your cash flow statement can help you identify ways to optimise your operations. When reviewing your cash flow statements, you may realise that you’re not investing as much as you could be in an area of your business that is particularly profitable. You can respond to this by investing more of your capital into this growth area, creating a stronger business and greater value in the process.

Summary

Cash flow statements should be an integral part of your monthly management accounts. They are extremely important and must be interpreted correctly to understand your company’s current value and potential for growth. Your financial statements can help you:

  • See how you’re making money and where it’s being spent
  • Identify cost-saving decisions
  • Set realistic budgets, KPIs and achievable targets
  • Negotiate with investors and secure additional capital
  • Make better commercial decisions

At Dartcell, our Experienced Finance Directors (EFDs) know how to interpret your financial statements, help you improve your business’ performance and generate more cash. With a deep understanding of your management accounts, they’ll identify ways to reduce your costs, increase your income, and help deliver a better cash flow for your business. Working closely with you, they will use their commercial acumen to help you make profitable, cash generative strategic decisions that drive your growth and enhance your business’ value.

If you’d like to improve your cash flow, please contact us.