Cash Flow Statement – Where in the World is all that Money Going?

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Cash Flow Statement – Where in the World is all that Money Going?


Planning for a company’s cash needs is important as even during the time of best profits; because if a company’s cash flow is mismanaged, it can still collapse. Many entrepreneurs use the cash flow statement to gauge the company’s pulse and sustainability.


The cash flow statement should accurately depict how the cash will be used in a given period of time. It should also reflect the longevity of the company especially if the inflow of cash is not as fast as the outflow. It also tracks the usage of cash over specific time periods. Operations, investments and bank loan repayments are some examples of how cash is used.

Ultimately what people look for is whether the business has a positive or negative cash flow. A positive cash flow means that the company is generating excess cash even after using cash to fund the operations of the company. The cash accumulated will serve as reserves in the company to be used for important expenditures or in times of difficulty. A negative cash flow means the company is exhausting its cash reserves and in such a situation, it is crucial to determine how long it will take for the company to run out of cash.

The statement, which already measures the rate at which cash is being utilized, will give a good gauge of how long the company will be able to sustain itself with the remaining cash. This will help direct the company to raise more funds or to cut costs so as to minimize outflow of cash so that the company can be sustained with the given amount of cash remaining on its balance sheet.

It is of paramount importance to be able to justify to others how the company’s performance will be gauged and affected if things fluctuate. Alongside the cash flow statement, other financial statements that should be included are the capital spending roadmap, the financial policies adopted that will affect the economy such as depreciation policies and exchange rates, salary rate chart and benefits for employees.

In addition, breaking down the financial statements according to time periods is important as the details of the statement may vary across time periods. Typically there should be a monthly breakdown of financials for the initial 12 to 18 months after which having quarterly financials for the next two years may suffice. Very few individuals are able to predict their financials in the long run and so including yearly numbers beyond the third year instead of quarterly and monthly numbers should be appropriate. On the whole, the business plan should include 5 years of financial statements.

So remember the popular saying that “Cash is King” and you must make sure you company shows healthy cash flows and has a healthy cash position that will see you through periods where you will not be able to raise funds.

On a final note, having profits alone is not enough – you profits must also arrive as cash on time because if they don’t, the company may not have enough cash to pay the bills and can lead to failure or collapse.

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