Are you reviewing your cash flows?
Financial statements are used by business owners, lenders, investors and tax authorities for various reasons. The balance sheet and income statement are prepared in most situations by accountants since the CRA requires these for corporate tax returns. The income statement is required by unincorporated businesses by CRA.
However, an important and underrated financial statement that small business owners should be reviewing is a statement of cash flows. This statement shows a company’s cash inflows and outflows from operating, investing and financing activities. This statement can show you why a business may be profitable and yet not have as much in the bank because of equipment purchases or loan payments.
Owners can use the statement of cash flows to help predict future cash flows and budget while investors and lenders can use this statement to help determine whether the company is healthy. Typically, the more cash the better, however the company may be in a period of growth where they are purchasing or financing equipment which eats up cash. Both lenders and investors want to know if they are going to get a good rate of return and their initial money back over time.
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