Managing Cash Flow

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Managing Cash Flow
Cash Flow is made up of revenue or expense streams that move between cash accounts over a stated time frame. The "statement of cash flows," traces the sources of cash created and used by a firm during the period is calculated by adding noncash charges (such as depreciation) to net income after taxes.
The purpose of FASB rules applied to financial statement makeup are not about tracking the movement of cash through your business. They are concerned with the measurment profit or loss. Income does not explain what happened to your cash balance during the accounting period. It simply explains net income based on the accounting rules governing income statement creation. Net income is only one component of understanding and managing
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When managing a growing company, monitor expenses prudently. If you see your percentage of expenses growing faster than your sales, evaluate your outlays to cut or control them.
The interval between receivable collections and payments made to your suppliers and employees can be a problem. Cash Flow Management (CFM) may be the solution is. CFM delays payables while accelerating receivables collections to create positive cash flow.
Managing Cash Flow
Use “What-ifs” to Estimate Cash-Flow
You may not have tried this yet, but creating “what if” scenarios based on swings in revenues, unexpected fluctuations in expenses, slow payment by large customers, seasonality, and changing personnel needs may help you survive.
Classroom discussion: If you increased your sales by 25% to 50% over the next six months, what would happen to your cash balance?
This is why the Statement of Cash Flows is important
How Income Statement relates to balance sheet
Operating Activities
• Cash generated from day to day operations of company.
• Income statement shows profits generated but not cash generated
• Adjust Net Income for non-cash

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