August 2024 Managing the Money with Megan Schmitke

The Forgotten Report: The Statement of Cash Flows

by Megan Schmitke

Have you ever gotten to the end of a successful business month and wondered, “Where did all that money go?!”

Most of the business owners I work with are familiar with the Profit & Loss statement, so you can see that your bottom line was KILLER last month, but your bank account simply doesn’t reflect it.

The best way to see where your money actually goes each month is to look at the Statement of Cash Flows (SOCF). Unfortunately, this is a report that many business owners are unfamiliar with! So, let’s cover the highlights…

The first line on the SOCF is your net income, which you can see broken out on your P&L. It then makes various cash adjustments to show you how the actual cash moved in & out of your business during that same period. Adjustments for things that don’t hit your P&L, such as payments towards your debts, owner’s draws, and inventory purchases.

It’s important to understand that any NEGATIVE numbers on this report indicate a cash outflow and any POSITIVE numbers mean a cash inflow. A positive number can also indicate that you were able to receive the BENEFIT of a purchase, but you didn’t actually have to pay cash for it yet, such as putting it on a credit card, or buying something on account, that you’ll pay cash for later.

The statement of cash flows can be confusing at first, but I challenge you to start looking at it every month to ensure you know where all your hard-earned money is going!