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A cash-flow statement is a bookkeeping tool that provides information and alerts about two key funds within a business. They are outgoing funds or payables and incoming funds or receivables. A cash-flow statement also reveals how well a company manages cash and cash equivalents by giving a detailed analysis of operations, investments, and other financial activities. Here are five reasons having a cash-flow statement is important:

 

A Cash-Flow Statement tells an organization if it is running out of money while it is profitable  Check out America's Best Bookkeepers

 

When businesses are developing, the growth and profitability can be rapid. In these cases, having the bookkeeping tool of a cash-flow statement can inform if the business has cash-flow problems despite being profitable. This detection can help the company adjust the budget to have a positive cash flow.

 

A Cash-Flow Statement tells a business entity if its owner takes too much money out of it 

 

Another advantage of a cash-flow statement is that it provides information to the managers and other stakeholders of cash withdrawals. The importance of keeping track of these withdrawals is to make sure the delegation of that money is going to the right places. These types of withdrawals will not show up in profit or loss but will appear on the cash-flow statement. The idea is to ensure the withdrawals are not excessive and are appropriately distributed. Check out America's Best Bookkeepers

 

A Cash-Flow Statement shows the results of building inventory, letting receivables grow or paying suppliers more rapidly

 

The changes in the inventory, receivables, and payments to suppliers are not shown in the profit and loss statement of a company. All these components will appear on a cash-flow statement, and the business needs to analyze changes that appear in inventory, receivables, and supplies. The reason this is important is that it will show what cash a company has available after these areas are handled.

 

A cash-flow statement shows capital purchases up as an expense Check out America's Best Bookkeepers

 

A cash-flow statement will show all the capital available to purchase equipment. If a business needs equipment, then it can identify how that equipment can be financed. The cash-flow statement provides clarity about the available expenses. This will be important when making any capital purchase decisions.

 

A cash-flow statement shows how bank loan payments of a company are affecting cash

 

Loans are often a necessary part of a company’s financing. The loan payments of an organization and how it impacts the available cash are tracked on the cash-flow statement.  This tracking of loan payments can be the difference between failure and success. If the statement indicates the loan payments are affecting the cash available, adjustments can be initiated to avoid a negative effect on the business.

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