Have you ever asked yourself the question, “I am making a profit, but I don’t know where the cash is?” Many business owners tend to manage their business strictly from the income statement. An income statement is essential to a business as it provides a historical view of what transpired in the company over a period of time and gives the business owner, banks, and other investors a better perspective of what contributed to the net profit or loss reported. However, the income statement does not necessarily translate into an increase or decrease in cash. Understanding how the income statement results will impact the cash flow of the company is equally important, yet often ignored.
Every business owner should have a clear understanding of the financial implications of his/her business decisions to increase the chance of success. If you don’t take control of your cash, it will most certainly take control of you.
Anyone running a business needs a clear vision of how the business is going to generate cash. Revenues are a means to generate Cash
Here are some common issues that may affect the cash flow of the business:
Monitoring these issues is not a difficult thing to do. A simple report incorporating income statements and balance sheet information every month will focus on management in the right areas and help to improve the cash flow of your business. This report should identify the customers’ management must contact to resolve quality and past-due collection issues. It should also identify excessive inventory issues and other cost drivers that may impact the financial results of the business.