YOUR COMPANY ‘S CASH FLOW IS CAPTURED

I am sure by now you already know that the Funding Institutions or Investors do require either your Financial projections or the actual ones if you are trading already before they can assist you.

You might know the reason for this but i just wanted to share with you as to what exactly matter to them when they read your Cash Flow Statement.

Cash Flow is the most important part of your Financial Statement, as they use it to trace the flow of funds into and out of your business. The Primary purpose is to provide the information regarding the company’s cash receipts and cash payments. Those who want to work with or assist you in the business want to see the level of your responsibility towards the company’s finance. Your irresponsibility might cost them a lot of money they have invested into your ‘soon to die’ business something that could have been avoided. No one want to invest in such reckless spenders especially those that do not respect the monies of the company.

The pattern they use to trace the Company’s cash flow is simply that if they see there was a huge deposit of money from clients as a result of sales and in no time the money is gone. Theirs will be to evaluate the reason for the quick disappearance of the money. The three elements they use to see if the money was spend recklessly, they search if the money was used for either of the following: Operational activities, Investing activities or Financing activities. If the disappearing of money has nothing to do with this three criterias then they are sure that the money was wasted. See below what the three criterias include.

Operating Activities means if Sales and Services Revenue have been receipted and they are therefore used towards Cost of Sales, Selling Expenses, Administrative Expenses are paid, etc. Thus it will be understandable to anyone reading your Cashflow that the money went out towards Operational costs.

Investing Activities means you could have used the money either for Investing in other Companies, which this means you are interested in growing your brand or your company as the investments will be rewarded in the future.

Financing Activities could be that you used the money to repay the company debts, borrowing of funds or capital injections.

You therefore need to be careful of your spending habit. No one will want to buy into the company that will die with their money because of the irresponsible spending of the owner. You need to account for every cent coming in or going out of the business.

Compiled by Dikeledi Seoloane – On behalf of Matsobanemetja Business Consulting.

http://www.matsobanemetja.co.za