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Cash Flow Analysis and Why It's So Important for Small Businesses



Cash flow is the lifeblood of any small business. Without enough available cash, you won't be able to pay your staff, cover your outstanding bills, or grow your business. A comprehensive cash flow analysis is a financial statement which shows how much cash your business is bringing in and spending over time,  and it can help you identify potential problems with your cash flow.  Here’s everything you need to know about how to do a Cash Flow Analysis and why it’s so important for small businesses.

A regularly-scheduled Cash Flow Analysis can reveal issues with your cash flow, such as:

  • Not having enough cash to cover expenses
  • Cash flow spikes and dips that can lead to financial instability
  • Uneven cash flow that can make it difficult to plan for the future

By regularly reviewing your cash flow analysis, you can identify these problems early on and take steps to correct them. This will help you keep your small business afloat and ensure its continued long-term success.

How to Do a Cash Flow Analysis

Maybe it’s the somewhat nebulous nature of a cash flow worksheet that makes it a bit more baffling than other types of worksheets, as it demands specific knowledge and a clear view of the unique operations of your business. In order for it to be useful, the information entered must be accurate and up-to-date every time.

There are a few different ways to do cash flow analysis. One way is to use a cash flow template. These templates are available online and can be customized to fit your business's needs. Another method you can use to do a cash flow analysis is to purchase accounting software. Most of the popular accounting software programs have a built-in cash flow analysis tool.

No matter which method you choose, there are a few basic steps involved in doing a net cash flow analysis:

  • Identify your sources of income. This includes things like sales, rent, and interest income.
  • Identify your expenses, including the primary ones such as rent, payroll and utilities - but don't forget the smaller categories such as meals and travel.
  • Track your income and expenses over a specified period of time. This could be weekly, monthly, quarterly, or annually. Or you can do multiple analyses throughout the year.
  • Calculate your net cash flow. This is the difference between your income and expenses.

Once you've completed your cash flow analysis, you can use the results to identify potential problems and take steps to correct them. Here are a few things you can do:

  • Increase your income. This could mean raising prices, increasing sales or finding new sources of income.
  • Reduce your expenses. This could mean negotiating better deals with vendors, cutting back on unnecessary expenses, or finding ways to be more efficient without initiating further cash outlay.
  • Get a line of credit. A line of credit can give you access to cash when you need it in case of unexpected or emergency expenses.

Cash flow analysis is an important tool for any small business. Regularly reviewing your operations cash flow and correcting any problems can ensure that your business has a healthy cash flow and is on solid financial footing.

Working with Your CPA

If you're unsure how to do a cash flow analysis or want to ensure your analysis is accurate, you can work with your CPA. Myrick CPA can help you understand your business' financial situation and develop a plan to improve your cash flow.

Regularly reviewing your cash flow analysis and correcting any problems can ensure that your business has a healthy cash flow and is on solid financial footing. Contact Myrick CPA today for more information on how we can help you keep your cash flow in the black. 

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