As we experience a strong year in our business, new clients always have a list of questions to guide our client-tailored task list, and one question that appears on more than half of those lists is this one:
“We’re making a profit, why isn’t our cash flow reflecting that profit?”
It’s truly not rocket science, folks. It just requires some out-of-the-box thinking that is reflected in a standard report that virtually every accounting software package produces automatically, if only people would learn how to read it. In trying to develop a short post for this week I scanned the text in Chapter 6 of my book Finance for Nonfinancial Managers, for ideas. The chapter is 5,000 words long, so simply inserting it here was not an option, despite the fact that it’s really well written (in as much modesty as I could muster). So if you don’t have the book, at least here is a 300 word teaser that might help.
If the net profit on your income statement isn’t the same as the net increase in your bank account – hint: it never is – the reasons are clearly laid out in the Statement of Cash Flow. Think of net cash flow as an “adjusted net income.” Some examples:
See, it’s not rocket science after all. Need help getting your adjusted net income closer to your accrual basis net income? Call us. We can help. Or you could just read the book.
We are Your CFO for Rent.