The error many people make is to focus on their businesses profit and loss statement to the exclusion of all else. It’s a potentially fatal mistake because healthy profits can mask a cash flow crisis.
Profit and loss statements do not usually contain the information required to make an adequate cash flow projection.
To get across cash flow, you must start with a properly structured balance sheet that has all the detail, from inventory and debts to interest costs. You must know and understand the numbers. Business owners often think that’s what their accountant is for, but they couldn’t be more wrong.
Only with a comprehensive balance sheet in hand is it possible to construct a useful cash flow budget. Sometimes called a cash flow projection, this vital document is a “best guess” at a business’ cash inflows and outflows over a period of time.
Tip from Smart Company website.
Follow the 31 day Cash Flow Challenge here and on Facebook.
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