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Understanding your Cash Flow

Understanding cash flow is a vital component of any business.  According to Eric T. Wagner, contributor for Forbes, “At surface level, the primary reason businesses fail is that they simply run out of cash.”
Knowing how much money is coming into and going out of your business means you can determine your net cash flow (or cash on hand), and having a positive balance allows you to do things like pay your expenses, settle debts, give something to your shareholders, invest back into your company, and make provision for difficult times
At Sage Intelligence, we’re here to help you understand your cash flow through the Cash Flow report, which you can get hold of through our Report Utility.  In this tip, I’m going to run through accessing the report and guide you through understanding it using Sage 300 Intelligence as an example.
Getting hold of the Report Utility
If you’re not already sure, the Report Utility is a small tool which you download and install and gives you access to a number of additional Sage Intelligence reports, all at no extra cost.  To get hold of the Utility, do the following:
1. In a new tab in your web browser go to sageintelligence.com.
Take note that our website recently received an upgrade, so even if you already have the Utility, why not take a look and become familiar with it.
2. Select Resources from the menu at the top of the page and then click on Additional Reports.

3. You’ll be taken to the Additional Reports page where you can watch a short video on getting started with the Utility, showing you how to download and install it.
4. Then further down the page, you can select the option for your Sage Accounting Package / Business Solution.

5. After that, you’ll be able to access the download link for the Utility.
6. You’re also provided with a number of report categories and by expanding one, the reports for that category are shown. By selecting a report, you’re shown a preview of it.
A Cash Flow report is provided for Sage 50 US, Pastel version 14 and 17, 100, 300, 500, X3 and Evolution Intelligence, and can be previewed under the Cash Management category.  Depending on your Accounting Package / Business Solution, a number of other cash related reports are provided to help you manage your cash.  Why not check them out?

Downloading the report
1. Once you have installed the Utility, open it.
2. Uncheck all the reports using the Select None button, Check the Cash Flow report and then click Download.

3. It will be added to your Report Manager in a folder called New Reports and you can run it out from there:

Understanding the Cash Flow report
Cash Flow Statements are divided into three sections; cash flows from operating activities, from investing activities and from financing activities.  Cash flows from operating activities are those that occur from the day to day running of your business, for example; collecting cash from sales or paying expenses like salaries.  Investing activities happen occasionally and include things like buying and selling machinery or property.  Then, financing activities include things like borrowing money to run the business and paying back those loans.
The Cash Flow report is made up of two sheets.  In this case, these are Cash Flow and Cash Flow Detail.  The balances in the report are the year to date period movements for each account type or activity and data are provided for both the current and prior years.
Cash Flow is the main sheet, showing the cash flows for the three activities.  The totals for each activity are then added together to give the net increase in cash for each period.  A line is given showing the total cash or equivalents at the beginning of the year and this is added to the net increase to give the total cash at the end of each period.
A graph is also provided allowing you to compare your total cash flow for the current and prior years and below that is a reconciliation section.  This compares your total cash flow with the cash value as per your balance sheet, to make sure they line up.

The values for operating activities in the Cash Flow sheet are derived from the Cash Flow Detail sheet.  This is because calculating net cash from operating activities is more involved.  The detail sheet takes your Net Profit from your Income Statement, either before or after tax and then adjusts it for non-cash flow items, for example, depreciation or changes in working capital.
This is because, in accrual-based accounting, revenues and expenses are recorded when they are earned, regardless of when the money is actually received or paid.  Thus the profit shown on your Income Statement isn’t necessarily a true reflection of the amount of cash that has come into or gone out of your business.  It, therefore, needs to be adjusted, removing and adding those items that don’t represent actual cash received or spent.

I hope that you can derive benefit from the Cash Flow report for your business.  If you would like more information on the report and how it ties in with your Income Statement and Balance sheet then check out our Starting out with Sally video series which will introduce you to these statements.
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