Using cash flow tools

Imagine a business, if you would, that shows decent margins, low debt, and slowly growing sales. Bankers examine the financial statements declare that the company is in good shape. “Carry on and keep up the good work,” they say.

But the company is suffering, getting later with supplier payments and struggling to make the payroll.


In my consulting practice, I have found that an emphasis solely on financial statements is misplaced. In the majority of enterprises, financial statements are forensic in nature, arriving well after the damage is done and looking entirely in the rear view mirror.

A cash flow analysis using a cash flow template is an indispensable tool to operate a business profitably. It can easily be done on paper, a white board on in a spreadsheet program.

The principle of cash flow analysis is simple to understand. How much is in the bank today begins the calculation. Add to that balance, the amount of cash inflow from cash payments and accounts paid. Subtract what must be paid to suppliers, rent and employees, et.al.. The net result is the ending amount in the bank. That ending balance becomes the starting balance for the next cycle.

What is important is that we now know when expenses can be paid without bouncing a cheque. We can estimate the cash coming in this week. We know what must be paid. We know when a bill can be paid. If this week is cash poor, we can delay a payment. Or better, we can do something to accelerate a cheque coming in or make that sale that will help so much.

The result is that cash flow analysis can help us to predict and control the company’s future. Try that with a profit and loss statement!

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About the Author

Andrew Gregson, BA, MA, M.Sc. (Econ), holds a Master's Degree in Economics from the London School of Economics.

Andrew's experience working with an international business consultancy and being a business owner for 15 years was the impetus for his book "Pricing Strategies for Small Businesses". He brings his expertise in finance, pricing and debt restructuring to the table to help struggling manufacturing and service companies to return to profitability. This has helped companies to rebuild value and often to sell at much higher dollar values.

Andrew has contributed to trade journals, "Spark" on CBC National Radio and has been a guest speaker at business networking groups, colleges, universities on his topics of expertise - pricing, exit plans and debt. He is also a frequent contributor to blogs and online postings for business help.

Andrew is currently the President, Board Of Directors intent Financial Inc., his role is overseeing intent Financial Inc., Intent Investment Corporation and other related ventures.


Website link:  www.intentfinancials.com

Contact e-mail address:   [email protected]

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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