Making informed business decisions might have been easy when you first started out, but as your company has grown, have you started to wonder: How will this investment, debt or new hire impact my cash flow?
Understanding your cash flow is critical for sound decision-making. Your cash flow statement is a strategic tool focusing on three areas of importance:
Flexibility:
Your business needs to be able to absorb changes in market conditions, as well as recognize an opportunity and have the ability to act in ways that provide a competitive advantage.
Liquidity and Solvency:
Your cash flow statement provides key information about liquidity, or whether you can meet short-term obligations, such as paying your employees or suppliers. Over time, it also provides information about your solvency, or your ability to meet long-term obligations. Liquidity and solvency provide insights into your ability to sustain financial challenges.
Risk:
One of the benefits of receiving expert insights on your cash flow is the ability to spot risk. You may easily see when too much of your cash is flowing from a single client, but it may take more examination to identify other areas of risk.
Each of these three areas provides key information about the health of your business, and the implications of these insights may have a direct impact on your decision-making as a business owner:
Operational Decisions: Examining the various areas of operations can help you identify inefficiencies and opportunities that could improve cash flow. Whether it involves human resources, inventory management or other areas, cash flow can provide helpful information for operational decisions.
Investing: Cash flow analysis allows you to determine expected returns on different investments, prioritizing potential investments based on their value for your money.
Valuation and Mergers: Whether you may be considering an acquisition or contemplating ways of making your company more attractive to potential investors, cash flow is a key area that should be considered in determining the financial health of a business. Good cash flow management provides the necessary transparency for a successful acquisition.
Financing: Your cash flow statement provides strong evidence for whether your company can service more debt without difficulty.
While a cash flow statement is a straightforward report, it offers a wealth of information about your company. The Power CFO works with companies like yours to provide in-depth insights based on accurate, timely financial reports. Contact us to learn more about our services.
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