Ok so maybe Disney didn’t EXACTLY sing about Cashflow Statements, but like Bruno, it’s that financial statement family secret that no one wants to deal with. 

Personally, I didn’t like Encanto (which is where the song “We Don’t Talk About Bruno” is from – in case you’re not a Disney nerd like me).  I didn’t get it, or the hype…and just like Encanto, I don’t like Cashflow Statements. 

Now don’t get me wrong, knowing and understanding your cashflow is the MOST important thing (IMHO) to know about your business.  But the report that accountants and accounting software create for this is moderately useless.  I’m going to give you a high level of this report though because I want you to know what you’re seeing so you don’t get intimidated by this if you ever get one-handed to you.

In a nutshell, the cashflow statement shows you where your cash came from – operations, investors, and/or loans.

There’s an example of a Cashflow Statement below so you can see what this looks like. 

CASH FROM OPERATIONS

Put simply, this is your Net Income (from your income statement), adjusted for money you’re still waiting on (A/R), money tied up in inventory, and will detail what current liabilities i.e. credit cards, lines of credit, A/P, unpaid taxes, etc. are still unpaid.

This gives you your NET CASH from OPERATIONS.  If you didn’t have any of the other sources of cash, this is what you’d be on the hook for as a business owner.  In the example below, I’d be in the hole 14K and be scrambling in my personal bank account to figure out where this money was going to come from.  Or more realistically, I’d be hold off on any inventory purchases or pushing out any bill payments so I could keep my head above water.

CASH FROM INVESTING

This shows the cash in or out from purchasing or selling your long-term assets.  In the example below, the business bought a new laptop so $1600 was taken out of the available cash.  A positive number would mean that you sold an asset.  These long-term assets could be investments as well, so if you put your business savings into a mutual fund or bought shares in another business, any interest or dividends earned from that would be a “positive” number as well – i.e. its cash IN to your business.

CASH FROM LOANS/FINANCING

This last section on the Cashflow Statement shows money pulled from or paid back to your Long-Term Debt.  As you might imagine, the main source of long-term debt for us bootstrappers, is the Shareholder Loan (SHL) – aka you.  If your business needs the extra boost, you’re first on the hit list to cover its costs. In the example, this Shareholder put in over 17K to cover the businesses butt over the year.

The totals of those 3 amounts, added to your starting cash balance, will equal your ending cash balance.  And by “cash balance” I literally mean the balance in your chequing and savings accounts.

So that’s what your accountant will give you.  And I have to say, that even with all my love for numbers, this statement is pure gibberish to me.  While I see the logic, it’s just not intuitive, and for the way businesses like ours operate, I find it useless.

The only number of value I see here is cash at the beginning and cash at the end…and really, that’s not valuable; I can look at my bank account to see that.  Maybe as a total it’s “interesting” to see the cash from operations, investing, and financing – but interesting is not valuable. I want to ACTUALLY know what took or brought in the money in the biz.  And this report just doesn’t cut it.

I have a different way of looking at cash in and out that makes WAYY more sense to me…but that’s a story for another week.  I don’t know about you, but my brain can’t handle more than this for one week. ;)

*But if you can’t wait, book in for a Get Me Out of this Chaos Heart-to-Heart call and we can delve into your cashflow woes!