Analysing your cash flow statement
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When you have a good understanding of your cash flow, you can use that information to measure your performance and make decisions.
Assess your business performance
- You can compare your cash flow to similar businesses. This can help you to identify where you are under spending or over spending compared to your competitors. Learn more about benchmarking your business.
- Cash flow can be used to calculate your financial performance. Financial ratios often use cash flow to measure your business and see if you are progressing towards your goals. These ratios are also used by lenders and investors to determine your businesses financial condition.
- Compare your forecast amounts against your actual amounts to see if you are performing as expected.
- If you are trying to recover from a setback, you may want to review your cash flow to see where you can free up cash. Learn more about surviving an economic downturn.
Consider cash flow in decision making
When making decisions on specific objectives or purchases, you should consider any impact on cash flow. The cost of an advertising campaign may lower your cash flow initially, but the resulting increased sales may raise your cash flow later. You may need a strategy to cover the cash shortage to gain the long-term benefit later.
Your finance plan is a key part of your business plan. Your cash flow forecast can help you to identify financial opportunities or risks and ensure your business is heading in the direction you want.
To get finance, you may need a cash flow projection. Some lenders will require this to ensure you can make repayments. If you are considering taking on debt finance, you will need to consider how repayments will affect your future cash flows.