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The Missing Piece in Your Management Reports : Cash Flow Statement

The Missing Piece in Your Management Reports : Cash Flow Statement

Posted on by Alyson Perry 4 min read

Profit is Great, But Cash is King! Are You Monitoring Your Cash Flow?

By Kim Stewart-Smith; CEO Stewart & Smith Advisory

Just today, I was speaking with a new client who sent over their latest management reports. They had a strong Profit & Loss (P&L) and a solid Balance Sheet, but I noticed something crucial was missing: a Cash Flow Statement.

This led us to a vital discussion, because as a business owner, while a healthy P&L is great, profit on paper doesn’t always equal cash in the bank. Many profitable businesses unfortunately fail because they simply run out of cash.

What a Cash Flow Statement Shows:

This essential financial document tracks the actual movement of money in and out of your business over a period. It’s broken into three key activities, offering a window into different aspects of your financial health:

Operating Activities:

This tells you how much cash your core business operations are actually generating. It’s about your everyday cash ins and outs.

  • Examples: Cash received from customers, cash paid to suppliers for goods/services, employee salaries, and rent.
  • Crucially, if your operating cash flow is consistently negative, it means your core business isn’t generating enough cash to sustain itself. You’ll then be reliant on external funding – adding cash from sources like new loans or owner contributions – which will clearly show up in your Financing Activities section.

Investing Activities:

This section reveals cash movements related to long-term assets and investments. It shows if you’re buying or selling things that help your business grow.

  • Examples: Cash spent on purchasing new equipment, property, or vehicles; or cash received from selling old assets or investments in other companies.

Financing Activities:

This highlights how your business raises and uses capital from debt and equity. It’s about your funding strategies.

  • Examples: Cash received from bank loans, cash paid to repay loans, cash from issuing new shares to investors, or cash paid out as dividends or owner drawings.

Why It’s Critical for Your Business:

The Cash Flow Statement is your business’s true financial pulse. It helps you:

  • Manage Liquidity: Know if you have enough cash to pay bills, payroll, and suppliers today.
  • Forecast Needs: Predict future cash shortages or surpluses, enabling proactive planning for growth or tough times.
  • Identify Issues: Pinpoint where cash is truly going and detect potential drains or inefficiencies.
  • Make Smarter Decisions: Inform strategic choices on investments, debt, and operational improvements.
  • Plan for Growth: Understand if you have the actual cash reserves to fund expansion without relying solely on external financing.

Don’t just look at profit – understand your cash. It’s the lifeblood of your business.

At Stewart & Smith Advisory, we help business owners deeply understand their cash flow, empowering you to make informed decisions and build a more resilient future.

Want to gain crystal-clear insights into your cash? Connect with us (info@stewartsmithadvisory.com) for a discussion on optimising your financial reporting.