You know, several weeks ago I did a couple of videos on how to create excess cash in your business. During these videos I talked about a thing called the cash flow statement. And since I put those videos out, I’ve gotten lots of questions from folks about what a cash flow statement actually is, and how to use it. Now, that’s what today’s video’s all about. It’s about what a cash flow statement is and how it’s put together.


Transcript

You know, several weeks ago I did a couple of videos on how to create excess cash in your business. During these videos I talked about a thing called the cash flow statement. And since I put those videos out, I’ve gotten lots of questions from folks about what a cash flow statement actually is, and how to use it. Now, that’s what today’s video’s all about. It’s about what a cash flow statement is and how it’s put together.

We’ve already talked about how to use it, but it’s really important for you to know how your cash flow statement is put together. I know this is a bit wonky, and sometimes we have to do a wonky video because wonky stuff in a business can be really, really important. And it’s something that I want you to get your arms around because it is such an important concept.

Hey, I’m Josh Patrick. I’m the founder of Stage 2 Planning Partners and the Sustainable Business. I’m also am the one who’s responsible for putting together our Cracking the Cash Flow Code Program and I’m the author of Sustainable: A Fable About Creating a Personally and Economically Sustainable Business.

So let’s dive into our topic for the day.

A cash flow statement is that report that you rarely look at because it’s probably not being put together in your company. And your accountant rarely talks about it with you because it’s a combination of your profit and loss statement and balance sheet, and it’s a bit complicated in how it gets figured. Most CPAs understand that cash is important, but they’re more focused on the balance sheet and the profit and loss statement, not on the cash flow statement.

You don’t run your business on profits and losses, you run your business on cash, and you need to know about the cash flow statement, how it gets put together, and how you can use it in your business.

You know, I believe it’s the most important part of your financial package that you look at, and the reason is really simple. It’s the only report that’s gonna tell you what happened to your cash.

So here’s what a cash flow statement is.
  • It combines parts of your profit and loss statement and parts of your balance sheet. It doesn’t take all of the information from either, but it takes pieces of it. And what it does do, is it shows you what happened to your cash between a point in time. It could be a month, it could be a quarter, it could be the year.
  • It shows the changes that happened in the accounts that impact your cash.
  • It takes your profit and depreciation numbers from your profit and loss statement as accounts that produce cash. So if I have a profit, and I have depreciation, which is non-cash expense, it comes off my profit and loss statement, that creates cash. So that goes into my cash flow statement.
  • It looks at the balance sheet accounts that could impact your cash. You know, accounts like, did you borrow money from the bank? Did you pay money back to the bank? Did you buy any equipment? Did you sell any equipment? Did your accounts receivable go up, which eats cash, or did your accounts receivable go down, which creates cash? Did your accounts payable go up, or did your accounts payable go down? And again, if your accounts payable went up, what happens, it creates cash. If your accounts payable goes down, it eats cash. What about inventory? Inventory goes up, eats cash, inventory that goes down, creates cash. And we wanna know exactly how much cash we actually have.
  • You know, your cash flow statement looks at changes over a period of time. Most people do a cash flow statement who use cash flow statements properly in the business, at least on a monthly basis. And they also look at it on a quarterly or yearly basis, because over a long period of time you get a better sense what really is happening to your cash. Monthly is good, because it sorta gives you, say, am I having a problem today, or am I likely to have a problem in the near future? But quarterly and yearly actually give you that sense for what’s happening over my cash over a long period of time.
    .
    And if cash is really short, and this has happened to me more than once in my life, and you don’t know why, you’re gonna wanna do your cash flow statement on a weekly basis. Now when you do a cash flow statement on a weekly basis, it’ll drive your bookkeeping department absolutely mad. But the truth is, if you’re short on cash, or you’re running out of cash, and you don’t understand what’s going on, you really need to do this on a weekly basis, you keep your arms around your cash. Now there are certain things from a cash flow statement I always put into a 13-week dashboard. Like, how much cash do I have? What’s my payables? What’s my receivable? What’s over 30 days, 60 days, 90 days? Those sort of things I wanna monitor on a weekly basis anyhow. But the full cash flow statement, normally monthly is enough, quarterly and yearly are also important for you to do.
So here’s what I want you to be doing.
  • I want you to make an appointment with your CPA and your bookkeeper.
  • And I want you to make them, and I mean make them teach you what a cash flow statement is, how you read it, how you put it together, where do the numbers come from.
  • In the beginning, I want you to at least monthly have one of them help you learn how to read the report. So that means, when you do the reports, you have whoever’s assembling your profit and loss statement and your balance sheet, and you are doing monthly reports, aren’t you? At least monthly, have them sit down with you and teach you what happened to your cash, how it got put into your cash flow statement, why did you develop more cash, or did you eat cash? Doing this is gonna help you speak the language of business.
  • So if your accountant or your bookkeeper can’t help you do this, and this is kind of important. I’ve actually had this, where I’ve asked bookkeepers, can you help me read a cash flow statement, and they say no, ’cause they don’t know how to do it. They don’t know how to put one together. If that is true with your bookkeeper, it’s time for you to get a new bookkeeper. You don’t need to have your CPA do this, but you might wanna have your CPA start.

So here’s my silly statement around cash flow statements, or learning how to read a cash flow statement. You know, if you go to France, what language do you speak? Yeah, I know, you speak French, ’cause that’s what they speak in France. If you own a business, what’s the language of business? The language of business is finance, and the cash flow statement is where you start, because it’s the basis for how you can understand finance, and the finances that drive your business.

So why don’t you scroll down, leave a comment, and while you’re at it, DOWNLOAD our Free Infographic on the success path for reaching cash flow freedom from your business. Hey, this is Josh Patrick. You’re at the Sustainable Business. Thanks a lot for stopping by. I hope to see you back here really soon.

Topics: Video, balance sheet, profit, profit and loss statement, Sustainable Business, cash flow statement, cash flow, excess cash, bookkeeper, accountant, cpa, depreciation

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