As a businessman you are supposed to prepare multiple reports to Calculate your Businesses financial condition for a given accounting period. Reports like Sales & Revenue reports, financial reports, inventory reports, formal & informal business reports, summarized business reports, GST reports, performance reports, annual reports etc, but few of them are required to prepare on a daily basis to measure the actual performance and effect of it on your business. Here we will explain what is Cash Flow and how quickly you can get it for your business.
# What Is a Cash Flow Statement?
The statement considers how well a company manages its cash position is known as cash flow. Cash Flow statement is a financial statement that shows the cash inflows and outflows of your business’ during a specific period of time. It is used to check out a business’s financial health.
This statement compares money in money out to determine if a business’s cash flow is negative or positive. The statement also shows how much money a business frequently has on hand at the end and start of a specified period of time. If your business is spending more in cash in comparison to cash receiving then the cash flow will be negative & vice versa. It also helps to Plan & Maintain a positive flow of cash for your business by keeping track of it on a daily basis. As per performance of cashflow statements you can draw up plans for your company about future budgeting.
# How Cash Flow Statements Work?
Many Businesses Fail to manage cash flow, which is why this is a critical tool for companies. To understand it better it’s broken down into three different business activities: operations, investing, and financing.
Operations – Cash flow from operating activities (CFO) indicates the amount of cash that a company brings in from its regular business activities or operations, such as manufacturing and selling goods or providing a service to customers. The cashflows from the operations section can also include accounts receivable, accounts payable, amortization, depreciation, and other items.
Investing – Cashflow from investing activities includes the cash generated or spent relating to any investment activities & is the result of investment gains and losses like cash spent on property, plant, and equipment,etc. .
Financing – Cashflow from financing activities (CFF) measures the movement of cash between a firm and its owners, investors, and creditors. This shows the net flow of funds used to run the businesses including debt, equity, and dividends.
The value comes after the all debits and credits of cash done for these three segments is called net cashflow.
# Why a Cash Flow Statement Is Required?
It is one of the main financial-statements of business accounting after the income statement & balance sheet. Cash-flow statement is required to measure the profitability & the long-term future outlook of an entity. It can help to evaluate whether you and your business have enough cash to pay expenses or not.
It is important to manage your cash-flow report effectively to gain better understanding of your current spendings. It provides the money to pay your bills, buy supplies, pay your employees, and keep your business operating. Keeping track of your business cash flow should not be a headache. That is why Vyapar app helps to Create your cash flow report automatically once transactions happen and updated in App.
# Benefits of cash flow
Every Financial statement is having a specific value of use. That is why every statement has its own importance and benefits in different ways. Here are the benefits of cashflow report:
It helps to verify the capital cash balance of a business even on a daily basis.
It helps you to ascertain the liquidity and profitability position of businesses.
Monitoring cash flow regularly helps to avoid 55% business risks.
This report can find out where you stand financially.
It is mainly used in preparing the cash budget for future needs.
# Cash Flow V/S Fund Flow
|BASIS FOR COMPARISON||CASH FLOW||FUND FLOW|
|Meaning||It is a statement showing the inflows and outflows of cash over a period.||A fund flow statement is a statement showing the changes in the financial position of the entity in different accounting years.|
|Purpose of Preparation||To show the reasons for movements in the cash at the beginning and at the end of the accounting period.||To show the reasons for the changes in the financial position, with respect to previous year and current accounting year.|
|Basis||Cash Basis of Accounting.||Accrual Basis of Accounting.|
|Analysis||Short Term Analysis of cash planning.||Long Term Analysis of financial planning|
|Discloses||Inflows and Outflows of Cash||Sources and applications of funds|
|Opening and closing balance||Contains opening and closing balance of cash||Does not contain an opening balance of cash|
|Part of Financial Statement||Yes||No|
# Income Statement V/S Cash Flow Statement?
|BASIS FOR COMPARISON||INCOME STATEMENT||CASH FLOW STATEMENT|
|Meaning||The income statement is also a part of a financial statement which is used to show the revenues, gains, expenses and losses for a specific accounting period.||It is a part of a financial statement that is used to reflect the inflows and outflows of cash only for a particular accounting period.|
|Divided into||Two activities- operating, nonoperating||Three activities- operations, investing, financing|
|Objective||To know the profitability and owner’s equity.||To ascertain the liquidity and solvency of business.|
|Preparation||On the basis of various records and ledger accounts.||On the basis of cash transactions made in a specific period of time.|
# How to Check & Share CashFlow Report in Vyapar App?
With Vyapar app you can easily check it in just a click.
Download Vyapar now and generate CashFlow statement-
Follow these steps:
1.) Click on “Reports” in left menu > Click on “ Cash flow” > Select the certain period of time as per your need
2.) You can export these details as PDF or XLS format and share it with people who matter.
72% of businessmen’s use “Cash Flow Report” to let their business perform smoothly under their check and get success in this competitive world.
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Frequently Asked Questions:
# How Many Businesses Are Facing Problems Due to Poor CashFlow?
Estimated 82% of business failures are due to poor cashflow management. Small Businesses owners and CEOs need to make decisions that sometimes can cause negative long term results with their business’ cashflow. Managing your cash flow properly takes time and energy, but it’s imperative to understand where your cash is coming in and how it is leaving. These are the some common cash flow problems that can severely impact your business:-
Lack of profitability.
Undervalued products or services.
Use of old equipment.
Not Creating a CashFlow Budget.
Collecting Receivables Too Slowly.
# How to Improve Your CashFlow?
Cashflow increasing key is not just bringing in more cash inflows, but also by limiting your cash outflows. This means you have to manage your expenses just as much as your sales. These are some strategies help to improve your cashflow:-
Offer Discounts for Early Payment.
Improve Your Inventory.
Send Invoices Right Away.
Vendor offers a discount for paying early.
Make it Easy to Pay by using UPI or QR code option
Identify & Target New Markets to increase the flow of money.
# Can CashFlow be Negative?
Yes, Negative cash flow is when a business spends more money than it makes during a specific period. It is often indicative of poorly managed receivables and the misunderstanding of how to use credit. These are the some reasons your cash flow may be down:-
Mismatched spending and income.
Large cash outflows.
Temporarily, negative cash-flow is allowable, but repeated negative cash flow can cause a business to fail.
# How to do a Cash Flow Analysis?
To do a cashflow analysis you need to prepare a cashflow statement which will track how much money is coming in and out of your business. Then you can analyse your operating expenses, investments, financing costs etc.With the help of cash-flow analysis you are examining precise details of where your business sends and receives money. If your cash flow analysis shows that you are about to be low on cash and not able to make your payments, you can adapt by obtaining financing, cutting costs, or trying to increase income.
# What Happens When Your Cashflow is Negative?
When your business is negative. You cannot cover your expenses from sales alone. In this time your business may face many problems like-
- Unable to pay bills
- You will be forced to borrow money
- You must pay interest
- Pendency of direct or indirect expenses may increase day by day due to lack of money.
- Loose your goodwill and credibility
- Overall the business will be in lose
# Is it Necessary to Prepare a CashFlow Statement Along With the Financial Statements?
As per the accounting standard 7, cashflow statements play a crucial part in preparing the profit and loss account. Hence preparation of cashflow statements required at the end of the annual year along with the financial statements.
# What is Meant by Demand Deposits in Cash Inflows?
Demand deposits are the cash deposits which are held at a bank or any other financial institutions drawn based on requirement. These are mainly used for fulfilling the short term cash requirements in the business.
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