Cash Flow Reporting for Small Businesses
Cash flow reports and statements are essential tools that record the cash and cash equivalents that enter and leave a business within a specific period. This financial measurement is critical for small businesses because it distinguishes between the profit an organization has earned and the movement of cash.
Prospective investors often use cash flow reports to determine business viability. It also informs financial enterprises about a business’s cash position when applying for loans and other forms of credit. Creating cash flow reports is also a mandatory requirement for businesses as specified by the Financial Accounting Standard Board.
Creating a Cash Flow Report for Your Organization
The responsibilities of the average small business owner are considerable. The business owner is expected to oversee daily operations and financial record keeping.
Cash flow reporting involves recording the three most important financial activities of your business. These include cash flow from operations, investing, and financing.
- Operations refers to the cash flow from revenue-generating activities. This includes cash earned from customer transactions and cash spent to provide goods or services.
- Investing includes the cash earned from investments and the cash spent investing in long-term assets.
- Financing measures the cash earned on investments and the cash spent on investing.
These three parameters also come with some complexities. For example, the cash spent on purchasing an asset to support business operations must be deducted from the cash on hand column even though you gain the cash equivalent as an asset. The cash deduction is made because you acquired an asset, but you no longer have that cash in your bank accounts.
Challenges Business Owners Face with Cash Flow Reporting
Approximately 69% of small business owners have concerns about accurately reporting cash flow due to difficulties with collecting and aggregating data across multiple bank accounts. The challenges new companies face with cash flow reporting include:
- Capturing Cash Flow Data – The average business operates with multiple bank accounts to meet the transactional requirements of its customers. The task of collecting data from these accounts without the assistance of an accounting expert or department can be daunting. In many cases, errors occur as the business owner relies on manual, repetitive processes to collect transactional data.
Capturing cash flow data for a month could be a manageable task, but when reporting is extended to a year and across multiple accounts, the margin for error increases.
- Inaccurate Cash Flow Forecasts – These forecasts estimate how much cash will flow in and out of the business within a certain period. Accurate cash flow forecasts rely on historical data, but for companies without extensive financial history, inaccurate projections can be made. Using these inaccurate expectations to generate a budget or manage cash can negatively impact the organization’s success.
In some cases, small business owners include receivables, a balance of money from services rendered, into cash flow reports even when they haven’t been collected. The inclusion of projected revenue can also negatively affect the integrity of cash flow reports.
- Calculating Cash Flow Reports – To accurately calculate your business’s cash position, efficient data aggregation is vital. Cash transactions must be defined and added to their proper columns to reduce the chances of discrepancies.
Resolving Cash Flow Reporting Challenges
Financial digital transformation has made tools that were once only available to enterprise-level organizations accessible to small business owners. Automated cash management systems can assist small business owners with data collection as well as cash reporting. These tools save businesses time and money by streamlining the data collection process across multiple accounts and utilizing automation to normalize data.
Automating data collection and aggregation across multiple accounts eliminates the possibility of errors when manually collating data. Cash management platforms also leverage machine learning to assist with data aggregation, making it easier to discover patterns for developing cash forecasts for future uses.
Lastly, mobile applications can assist the busy business owner by providing remote access to view cash transactions and reports.
As a startup or small business owner, you no longer have to lose sleep worrying about cash flow reporting. Leverage the power of open banking APIs and automation by utilizing a turnkey cash flow reporting platform to simplify the report generation process.
Download the Trovata Platform Data Sheet to learn how to empower your team to manage and automate your businesses cash reporting, forecasting, and liquidity with precision, powered by Trovata Platform.