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Understanding Your Cash Flow

Understanding your Cash Flow statements goes so much deeper than knowing if you’re making money or losing money. However, most small business owners are so busy operating their business, they don’t take the time and energy to really work through their Cash Flow statement on a monthly basis and understand what the numbers tell them. Most small business owners will hand their accountant a box or laundry basket (yes, I’ve seen that before) of receipts and leave all their financials in the hands of their accountant. Bookkeepers and accountants are great for doing the tedious work that leads to the big financial statements that are required at the end of the year. But the magic in financial statements is not the completion of them, but knowing what the numbers mean.
Let’s start with the Cash Flow Statement. More specifically, the Cash In. List every source of income you may have, whether it’s cash in from sales, accounts receivable, personal investment, or any loans. Enter those all in the appropriate months you expect to receive them. As you enter in each month you should be able to see some seasonality in your sales, therefore you can project your marketing campaigns around those fluctuations over the year and budget accordingly.

Cash in from Sales (Currently linked to “Calculations”)
Cash in from Accounts Receivable
Bank 1  – 0
Uncle Bob  – 0
Momentum  – 0
Investor  – 0
Total Cash in from All Sources

Next, let’s tally up all the COGS (Costs of Goods Sold). This all that is need to make your product, all the materials, the labour, any freight or delivery to ship your product. This where you can see much it costs to make your product and maybe make adjustments to that to increase your profit margins. Maybe your shipping costs are way too high, and you seek an alternate supplier.

Purchase Materials (Currently linked to “Calculations”)
Labour (required to produce Goods or Service) 30%
Freight (required to get goods or services in) 2%
Delivery (required to get goods or services to customers) 2%
Duty and Brokerage 0%
Total COGS Cash Out

The final section is all sales and general expenses. You can see in the chart how detailed it is expected to go. In many cases, you may have other expenses as well to add in. Every expense you can think of, add in.

Cash Out—Sales
(could be owner—fixed amount)
$ $
(could be owner—commissions over sales variable amount)
 Advertising $ $
 Travel – sales $ $
 Professional Development $ $
Total Sales Cash Out:


Cash Out—General & Administrative
Salary—Office/Admin (could be owner) $ $
Rent $ $
Utilities $ $
Communications (phone/cell/internet) $ $
Business Licenses and/or Permits $ $
Professional Services (accounting & legal) $ $
Travel—general $ $
Insurance $ $
Office Equipment $ $
Loan Payment—Interest
Loan—Repayment of Principal
Interest & Bank Charges $ $
Loans for 3rd Person
General Office Expenses $ $
Total General & Administrative Cash Out:

At the end of it all, you will add up all expenses and subtract that from all your revenues. What remains is your monthly surplus or deficit. So now you can see if you are making money or losing money. But like was stated, it’s knowing what to do with those numbers is important. What are you going to do about those numbers? You could increase advertising with the hopes of increasing sales, but then you’ll be adding to your advertising costs which may leave you with a higher deficit. You may also want to consider what your total sales expenses are as a percentage of your revenues. It is also interesting to look at the total expenses as a percentage of your revenues. If you find your expenses are too high of a percentage, look at ways on how you can cut your variable costs.
The Cash Flow is one of the most important documents of your business, it’s alive, it breathes, it changes. The Cash Flow checks the status of your business in any given month, like going to test your blood pressure every month. Then like blood pressure, if it’s too high, you look to take actions to change it. Same with the Cash Flow. Analyze it, and grow your business!

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