You may have heard that a cash flow statement is important for your startup, but how much do you know about the ‘why’ of it?
As experts in the field, we here at Virtual CFO Solutions will be outlining what a cash flow statement is, why it’s important, and, of course, how our team of virtual accountants are here to help.
Firstly, What is a Cash Flow Statement?
A cash flow statement (CFS) is a financial statement whose purpose is to synopsize the movement of cash and cash equivalents that are filtered in and out of a company. The CFS determines a company’s management of its finances, which in turn is defined by how well the company makes money to pay off its debts and financially support its working expenses.
The cash flow statement paints a picture for its users as well as investors, the latter because they are able to determine if a company has a solid financial standing.
It shows operating activities that may include:
- Revenues from transactions of goods and services
- Interest payments
- Payments from income tax
- Rent
- Employees’ salary and wages
- Other kinds of working fees
While a cash flow statement evaluates a company’s performance, it is not easily influenced by non-cash transactions and their organization.
The Importance of a Cash Flow Statement
Now that we’ve defined what a cash flow statement is, let’s take a look at why they’re so important for startups.
When it comes to your startup, there are three vital financial reports: the cash flow statement, the income statement, and the balance sheet. These three documents are used by investors, lenders, founders, and managers to accurately evaluate the startup’s financial well-being and success.
Some benefits of using a cash flow statement include:
- Confirming your productivity position
- Validating your liquid assets position
- Verifying your principal money position.
- Aiding in better management of your money both now and in the future
The next step to consider is when a startup should make a cash flow statement. The answer? The sooner you make a cash flow statement, the better. Your cash flow statement records any preliminary cash contributions made by founders as well as small business loans, so the best time to create yours was yesterday– and the next best time is now.
Virtual CFO is Here to Help
At Virtual CFO, we offer the advice and help startup businesses need to ensure their financial success, and by extension the long-term attainment of their business. We can help build your budget, as well as provide help in the fundraising stage, which is when you are considering the best type of investment for your business.
Enlisting the services of an experienced accountant to help you traverse through the financial reports of the balance sheet, the income statement, and the cash flow statement is crucial to having a solid understanding of the financial outflow of your startup. After all, when you have your finger on the pulse of how your business is performing, you’re able to plan accurately for expansion into further markets or the hiring of new personnel.
Our team of virtual accountants are ready to help you with all your financial needs. Get in touch with us today to get started.