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Understanding Cash Flow Statements

Do you know where your cash is flowing? I’m sure you watch your cash register or check book but do you ever really take a look at how all those cents in and dollars out are interacting. Better still if you are passing the age old test - more dollars in than dollars out. Well I have a pretty simple to learn statement you can use to give yourself a cash check up every once and awhile - something like monthly and regularly should do the trick.

It’s a cash flow statement and here is what a very simple one looks like:

Now it may not look like much, mainly because these worksheets don’t translate to pdf/picture very well but I hope that you get the idea. We are literally just taking a look at where the money is coming from and recording it, then where it goes and also recording it. The impact comes from patterns that you will start to see over time. Are your fixed expenses really fixed? Are there months that you happen to spend more on groceries or going out? How can you better prepare for the next month, quarter, season, or even year. You can also track your cash’s growth rates from category to category. Are you spending more or less as a percentage of your budget? Does your budget even make sense now?

If you are a small business or are thinking about a small business look at your projections. Did any one expense overly consume part of your budget? Was it worth it (well that takes looking at the profit and loss but we’ll get there)? How can you better allocate dollars to maximize your business's potential? It’s what every small business strives for right! Right! Something like this can also help you see what you are really responsible for.

When we do mental math, we think in big chunks and in big dollars. You might think that you have your budget under control because you have all your big expenses, bills, or even savings covered. What about the small stuff? It’s not about shaving your morning coffee off to help you save more - it’s about being aware of any extra stuff you add on to your purchase at the checkout line. Gas stations are especially bad! When you pump gas are you someone who grabs a bottle of water, snack, lottery ticket, etc - that’s the spending you need to pay attention to. You can work any part of your routine into your budget and watch that cash but it’s the unexpected’s that turn up in your cash flow statement. We won’t let it beat us though - because now you can plan for it.

I’m all for doing the things that make you happy which is why I try to never be that financial pundit that tells you about the thousands of dollars that you save over blah blah blah latte. That said you can’t know how to get to your financial happy place unless you take a real hard look at what’s going on now and a real hard look at what you can do to get you to that happy place. It takes work - just like anything else. If you are a small business it’s double the work because you not only have to be disciplined about this stuff but, you have to go out and actually do the work people pay you for.

I have this template as an Excel file so if you’d like to download it just shoot me an email and I’ll be happy to send it out - I’m going to try to also make it a download. 

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Reader Comments (1)

I came through google and found this blog very informative about cash flow statement i will share this information with my fb friends - thanks for sharing your thoughts regarding this interesting subject.

January 5, 2013 | Unregistered CommenterCraig Thompson

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