Managing a successful small or medium-sized enterprise (SME) requires an intricate understanding of cash flow. Amidst Perth’s vibrant and competitive business landscape, mastering the statement of cash flows, with the help of your Perth business accountant, can confer a significant strategic advantage. This comprehensive financial document paints an accurate picture of a company’s cash inflows and outflows, offering insight into its fiscal health and informing key decisions. But understanding this financial report, with its critical elements – operating, investing, and financing cash flows – can be daunting. That’s where a Perth business accountant comes into play.
Before we delve into how a Perth business accountant can assist your business, it’s crucial to understand what the statement of cash flows is and why it’s so essential.
Understanding Statement of Cash Flows
The statement of cash flows is a financial report that delineates where your business’s cash is coming from, how it’s being spent, and the net change in cash during a specific period. It’s a lens through which SME owners can view the financial health and liquidity of their business, thus influencing strategic decisions that can propel the business forward.
Components of the Statement of Cash Flows:
There are three integral components of the statement of cash flows:
Operating Cash Flow: This is the cash generated from your business’s regular operations, such as sales of goods or services. It’s a strong indicator of your company’s ability to generate enough positive cash flow to maintain and grow its operations. A positive operating cash flow is a reliable sign of a healthy SME.
Investing Cash Flow: This comes from purchasing and disposing of assets, such as property, plant, and equipment. While a negative investing cash flow might seem alarming, it could signify that the business is investing in its future growth.
Financing Cash Flow: This involves cash from investors, such as banks and shareholders, and cash paid to these stakeholders. Essentially, it shows the net flows of cash used for funding the business.
Benefits of Understanding the Statement of Cash Flows:
To Founders: For founders of Perth SMEs, understanding the statement of cash flows can be a game-changer. It provides invaluable insights into the timing, amount, and predictability of future cash flows. These insights are crucial for operational planning and budgeting, helping to avert cash crunches and align strategic planning with financial capabilities.
To Stakeholders: When it comes to attracting bank finance or investors, the statement of cash flows is often a critical piece of the puzzle. Lenders assess it to gauge a company’s ability to repay loans, particularly the operating cash flow, which indicates the cash generated from business operations. Likewise, investors examine this statement to understand a business’s cash-generating capabilities and the management’s effectiveness in utilising its resources. This is typically undertaken when an investor does due diligence on the business operations. A healthy cash flow often signals a profitable investment.
If you are going to make a payment arrangement with the ATO getting a statement of cash flows prepared is a critical element is showing the ATO that your business is able to finance the ATO payment plan.
To Employees and Family Members: For employees, understanding how their efforts impact the overall cash flow can enhance engagement and productivity. If you have Employee Share Schemes in your business the statement of cash flows can be linked to employee KPI’s. For family members involved in the business, this statement provides transparency about the financial performance and sustainability of the company.
In Global Operations: For SMEs operating in multiple countries, a consolidated statement of cash flows is pivotal. This statement captures the overall cash flow situation of the business across various markets, providing a complete picture of global operations.
Engaging a Perth business accountant with an international network of advisors like GGI Global Alliance is important so that your advisors can correspond with each other to work towards a coherent global cashflow statement.
The Role of a Perth Business Accountant:
A Perth business accountant plays a crucial role in helping SMEs understand their cash flow statements. They translate complex financial data into easy-to-understand information, elucidate trends in various categories of cash flow, and guide business owners in decision-making.
Moreover, accountants can assist in the preparation of consolidated statements of cash flows for SMEs with international operations. These consolidated statements ensure the business complies with international financial regulations and aid in strategic decision-making by providing a complete picture of cash flows from global operations.
Leveraging Xero Add-Ons for Cash Flow Management:
Understanding cash flow is one thing, managing it efficiently is another. Fortunately, there are several tools available through cloud accounting that integrate seamlessly with Xero to help Perth SMEs effectively manage their cash flow and understand how cash moves within their business.
Spotlight Reporting: This tool enables businesses to generate easy-to-understand reports, including cash flow forecasts, providing a comprehensive view of their financial performance. It helps SMEs predict future cash flow patterns and make informed decisions.
Fathom: This Xero add-on offers a suite of in-depth analysis tools and metrics that provide valuable insights into your company’s financial performance. It can generate detailed cash flow statements, helping you understand the elements impacting your cash flow.
Futrli: Futrli offers robust forecasting and reporting, helping businesses plan their cash flow efficiently. It’s AI-driven predictions can anticipate future cash flows, enabling businesses to prepare for different scenarios. At Westcourt Family Business Accountants we are a foundation Futrli Advisor with deep knowledge on how it can help families in business.
Calxa: Calxa integrates with Xero to deliver budgeting, cash flow forecasting, and management reporting solutions. Its automated reports and forecasts provide insights that help businesses better manage their cash flow and understand their financial status.
A Perth business accountant can guide you on how to leverage these tools, tailoring them to your business’s specific needs. They can also help you interpret the data generated by these tools, further enhancing your understanding of your business’s cash flow dynamics.
In an increasingly complex and globalised business environment, Perth SMEs that thoroughly grasp the nuances of their statement of cash flows stand a better chance of succeeding. The trifecta of operating, investing, and financing cash flows provides unrivalled insight into business performance and future potential. Add to this the power of Xero add-ons, and businesses can proactively manage their cash flows, making informed strategic decisions.
Engaging a Perth business accountant to navigate these financial waters is an investment in your enterprise’s future. They can translate the complexities of financial statements, guide the usage of cash flow management tools, and assist in strategic planning. Therefore, understanding the statement of cash flows and effectively managing it is not just a financial necessity but a strategic imperative for Perth SMEs.