Cash flow is one of the most important parts of any business. Taking the time to create and maintain an accurate cash flow can help you grow your business and save you money in the long term. Below, we delve into what a cash flow is, why you need it, and the benefits it can bring to your business.

 What is a cash flow report?

Simply put, a cash flow report, also called a cash flow statement, is a financial statement that summarises the movement of cash and cash equivalents (assets/investments that can easily and quickly be turned into cash) that flow in and out of a company.

Cash flow reports provide a detailed picture of the amount of cash a business has going in and out during a specific period, and determine the probability of a business being able to pay any expenses due.

There are a number of tools available for preparing a cash flow report. Using Excel is common, but can be a time-consuming way and often does not pull live data. We regularly use cash flow applications which link directly with the accounting system and can therefore pull out real-time information for sales and expenses within the period. The most common cash flow applications we use with clients are ‘Float’ and ‘Fathom’.

What information do cash flows include?

Cash flow reports include the following to ensure all future liabilities (costs due to be paid by the company) are accounted for:

• Accounts payable
• Accounts receivable
• Wages
• Direct debts
• Taxes payable

Why should your business prepare cash flows?

A cash flow report is a useful tool for all kinds of businesses, whether you are a new company just starting out or a more established company looking to grow.

Planning

Cash flows are one of the most important planning tools that a company can use. They show a company their cash position and ensure they have sufficient funds available when needed to sustain business activity.

All businesses are currently facing increased costs due to the cost-of-living crisis, and new or developing companies in particular can often find that cash flow is poor in the early stages due to the costs of building sales and customers. Cash flow statements help provide the company with an idea of whether they are generating enough cash to settle their debt obligations and fund operating expenses now and into the future.

For growing and more established businesses, cash flow statements can be used for ‘Working Capital Management’ - analysing the working capital available and identify the optimum level of cash required, to help determine whether there are any additional funds which can be invested in other opportunities.

Forecasting

Cash flow forecasting is crucial for sensible cash management. It can be used for:

• Setting strategic objectives – as noted above, companies can use cash flows to determine whether they can allocate cash to investing activities, and the perfect time to do this.
• Budgeting – companies can determine whether budgets align with the cash position of the company to determine whether they have sufficient funds to meet their budget/forecast.
• Liquidity management – cash flows allow companies to manage the liquidity of the business. For example, they can be used to determine the number of days of credit a business can afford to give to customers.
• Financial control – provides a tool to ensure the company maintains day-to-day cash flow for payables, wages and other expenses, maximises profit, and minimises the risk of insolvency. Cash flow management is crucial to financial control.
• Minimise borrowing costs – if the business is borrowing funds, this can determine the type of borrowing the company will require i.e. short, medium or long-term funding.

Tailored reports

The period in which the reports are based on can be tailored to all businesses, whether you would like them weekly, monthly, quarterly, or annually.

Making smarter decisions

Ultimately, knowledge is power! Having the information you need on your business's performance allows you to make informed decisions about cash management and investments, both short-term and long-term. Cash flow statements provide an at-a-glance summary of a business’s financials, so they are extremely useful in helping business owners gain an understanding of performance and identify the best courses of action based on the facts. Plus, using the forecasting tools mentioned above, businesses can save money by planning for the future based on cash flow predictions.

 Growing your business

Many new and growing businesses rely on funding, so a cash flow statement can be used to show where that funding will go and where you need it most. This can be particularly useful if you need to demonstrate to potential investors that your business is viable and that their investment will be used well.

How we help

We support a number of organisations with our cash flow services, one of which is a fast-growing tech business. Real-time cash flow data is critical for making day to day business decisions and for allowing the business to continue to grow. For this business, we use a software system called Float to ensure they get the information they need, when they need it. Float connects to the accounting system they operate, Xero, which allows us to see the business’s cash position at any point in time; past, present and future.

Using the data pulled from the accounting software, we can analyse the timing of payables and receivables, allowing us to show the client their current and future cash position. We can then build on this to show the impact of new projects or investments the client is looking to take on. The forecasting tool for scenario planning is particularly powerful for visualising differing options and planning larger scale investments.

Get in touch

Our Outsourced Finance Services specialists can help you prepare cash flows and support you with making the most of the benefits these can provide for your business. To find out more, please get in touch with me at hollie.sword@jcca.co.uk or another member of our Outsourced Finance Services team.