What Value Do Cash Flow Statements Offer to Leaders?

Cash flow statements are sometimes termed as the most important financial statements for the immediate use of a manager than any other. As a manager and a leader, you will be required to make timely decision in order to take your business to a profitable position and the cash flow statement can prove to be an important tool to help you with that. To simplify it for you, they tell you how much liquid cash will be at your disposal for a period.

Engage your finance department to prepare a cash-flow forecast for each month and analyze your actual performance against it. These should also involve the projection of income and expenses, and how your business operations would affect the inflow and outflow of cash. For example, an expected payment of credit sales that you made previous month could increase your cash reserves this month.

While you study the cash flow projections in relation to other financial factors, such as accounts payable or the due payments you have to make to your suppliers, fixed expenses such as paying overhead costs and other operational expenses for a period, you need to see whether you will be able to maintain enough liquidity to carry out operations smoothly.

Based on the projections, you need to make immediate financial and operating decisions to ensure that you keep your business out of a liquidity crisis. You could foresee poor liquidity trends for the upcoming months and could arrange for short term financing. At the same time, you could avoid such a decision and save financial costs if you feel that you are going to expect cash inflows from expected payments and can run operations without availing a loan.

For more accurate forecasting and analysis, prepare the cash flow forecasts every month, keeping in view the existing cash reserves, immediate expenses and expected income. Ask your finance team to illustrate the projections and actual performance with charts so that you could help understand these financial statements in a better way.