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Posted by on Oct 11, 2014 in Blog | 0 comments

What You Need To Know About Creating Cash Flow Statements For Your Small Business

One of the biggest considerations for investors and creditors is your company’s cash flow statement. It is a straight-forward look at where your money is going, and it isn’t affected by accounting adjustments like amortization and deferred taxes. Cash flow statements show your company’s position in terms of access to cash and the way that cash is used. If you’ve never created one, building your first cash flow statement can be intimidating. Here’s a look at each section of the cash flow statement and what you need to put into it.

Cash from Operating Activities

The first thing to focus on in your cash flow statement is the cash generated and spent in the activities associated with routine operations. In this section, you’ll illustrate the changes in the account balances for all of your current assets as well as the current liabilities. These are the accounts associated with your prepayments, unearned revenue, accounts payable and accounts receivable activities.

Cash from Investment Activities

In the second section, you’ll want to list the activities associated with investments. Include information about any property transactions as well as investment in equipment and facilities. All of your long-term investment accounts, capital equipment accounts and vehicles are part of this section. For example, if you operate a small diner, any investment in new kitchen equipment belongs here.

Cash from Financing Activities

The third portion of the statement focuses on your financing activities. When you buy stocks or bonds, it gets reported here. All of the company dividend payments belong here, too. Paid-in capital, retained earnings and notes payable need to be reported in this section as well. If you took out a loan with the Small Business Administration, that’s reported in this financing section.

Supporting Information

Sometimes, significant changes in your operations or in the way your accounts are handled can have a material effect on your cash flow. For example, if your tax liability changes significantly or you change your business operations, you need to make that known. The “Supporting Information” section is reserved for this.

The goal is to use this section to clearly identify any anomalies. It makes it easier for potential investors to evaluate your financial position this way, because they can identify any potential issues with the existing information and make educated forward projections.

When you understand what the cash flow statement sections mean, you can create a statement that will not only accurately represent your business but may also put you in a position where you can secure financing for growth and research. Work with an accountant or bookkeeping professional like Kamphaus Henning & Hood to help you finalize your records and create an accurate accounting report.

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