What is a Cash Flow Statement? A Cash Flow Statement measures the movement of cash flowing into and out of your firm over a specific period of time.
Do I really need to use one? In short, yes.
You may remember our earlier discussion on Cash vs. Accrual. The cash flow report is often overlooked but is a critical tool in running your firm as it is specific only to cash you have received or paid out. That is any cash you have incoming, such as: earned revenue, loans, LOC refunds, etc. As well as all the outgoing cash: paying bills, paying taxes, refunds to clients, etc. (Note: when pertaining to earned revenue, only cash in is shown while remaining amounts left to be paid from invoices are not.)
Firms will often use a Profit & Loss report (or an accrual report) which follows the amount you have billed to clients. If you are using your Profit & Loss reports and finding your checking account is regularly lower than you expected, we recommend looking at your Cash Flow Statement regularly. Not only will you learn a great deal about the movement of cash to and from your firm, you'll start to shed light on your billing practices and their effectiveness in relation to the general flow of your clients' payment habits.
Contact us if you need help creating a cash flow statement or understanding how you can apply the information from one to your practice.