What Is a Cash Flow Analysis?

December 13, 2019

If you are like many business owners and managers, you didn’t start your business to practice your accounting skills. In fact, many people running their businesses find themselves uncertain about how to properly handle and plan their finances. Have you heard of a cash flow analysis but are uncertain exactly what it is or how to make one? Read on to learn more.

The Purpose of a Cash Flow Analysis

Before you call your Los Angeles accounting service for help, it is worth at least understanding what a cash flow analysis is. In short, it is a method of checking your financial health by studying the movement of cash in and out of your business. Whereas an income statement examines profit and loss, the cash flow analysis only considers cash.

This is important because if you are making a lot of sales but have a lot of accounts receivable, you will have high income but low cash. In a lot of ways, the cash flow analysis is the most relevant financial statement for the practical management of a business.

How To Make a Cash Flow Analysis

Even without the help of an accountant service Los Angeles businesses can do a basic cash flow analysis. Create a budget for the month that includes you’re the cash you will bring in from income and the cash you will pay out for expenses. Only include line items that involve cash exchanging hands. Add your existing cash on hand to the top of the budget and add the change in cash you just calculated.

Getting More Advanced

Of course, the above is only the basics of analyzing cash flow. It can be helpful to enlist a professional accountant to perform a more in-depth analysis and help you maximize your cash flow. Cash is the lifeblood of business. So, if you are running a business in LA, it is worth hiring an Encino accountant to help you.