CASH FLOW STATEMENTS

SUSIE ROBERTS, IBBM

NOVEMBER 10, 2014

NAOMI BORROWED $20.00 FROM HER FRIEND, SYDNEY….• NAOMI EXPECTED TO EARN $20.00 FROM A BABYSITTING JOB, WHICH DIDN’T

HAPPEN. SHE ONLY EARNED $14.00.

• $14.00 IS NOT ENOUGH TO PAY OFF HER DEBT

• HER CASH FLOW IS OUT OF BALANCE AND SHE OWES MORE MONEY THAN SHE HAS

• SOMETIMES BUSINESS FIND THEMSELVES IN THE SAME SITUATION

• SALES REVENUE MAY GO DOWN EVEN WHEN EXPENSES DO NOT, MAKING IT DIFFICULT TO PAY ALL OF THE BILLS COMING DUE

• TO AVOID THIS, BUSINESSES MUST MONITOR THEIR CASH FLOW-USING CASH FLOW STATEMENTS

CASH FLOW IS…

•THE MOVEMENT OF FUNDS IN AND OUT OF THE BUSINESS

•BUSINESSES NEED CASH TO SURVIVE OR…

•THEY WILL NOT BE ABLE TO COVER THEIR EXPENSES, PAY EMPLOYEES, OR MAY FAIL (95%)

•EVEN PROFITABLE BUSINESSES MAY EXPERIENCE CASH-FLOW PROBLEMS BECAUSE SOME SOURCES OF INCOME ARE NOT STEADY

CASH FLOWS FROM MANY SOURCES…• START-UP MONEY (BANK LOAN, INVESTORS, PERSONAL SAVINGS)

• MONEY MUST FLOW INTO BUSINESSES BEFORE THEY CAN EXIST

• START-UP COSTS INCLUDE:

• EQUIPMENT

• SUPPLIES

• INVENTORY (STOCK)

•RENT

•BUSINESS LICENSES

OTHER SOURCES INCLUDE:• SALE OF PRODUCTS:

• FOR EXAMPLE, A MUSIC STORE RECEIVES PAYMENTS FOR THE SALE OF INSTRUMENTS, EQUIPMENT, AND SUPPLIES

• SERVICES SUCH AS LESSONS AND REPAIRS

• LOANS: INTEREST PAID TO THE BUSINESS, OR INTEREST EARNED ON INVESTED MONEY

• SALE OF ASSETS: SELLING ANYTHING THAT THE BUSINESS OWNS (NO LONGER NEEDED) AND THIS BRINGS IN CASH

• EXAMPLE: LAND PURCHASED, BUT NOW THEY ARE CHANGING LOCATIONS. SELL IT AND GET CASH.

CASH FLOWS OUT ….• TO PAY EXPENSES:

• OPERATING EXPENSES ARE DEFINED AS ALL OF THE EXPENSES INVOLVED IN RUNNING THE BUSINESS

• LARGEST SOURCE OF MONEY FLOWING OUT IS FOR OPERATING EXPENSES, ESPECIALLY PAYROLL

• PAYROLL, HEALTH INSURANCE, PAID VACATION, SICK LEAVE, RETIREMENT SAVINGS

• RENT, UTILITY COSTS, SUPPLIES (PAPER, STAPLES, PENS, BAGS)

• SHIPPING, DELIVERY

• ADVERTISING

• INSURANCE

• COST OF GOODS (COGS-COST OF GOODS SOLD)

• ASSETS (LAND, BUILDINGS, VEHICLES, EQUIPMENTS)

MORE OUTFLOW…• OWNER EQUITY-OWNERS NEED MONEY TO LIVE ON, SO THEY TAKE MONEY

OUT OF THE BUSINESS

• LOAN PAYMENTS-LOANS ARE A SOURCE OF CASH FLOWING IN/OUT OF THE BUSINESS

• TAXES: NEED TO PAY TAXES SUCH AS INCOME TAX, PROPERTY TAX, SALES TAX, PAYROLL TAX.

• QUARTERLY OR YEARLY

• MISCELLANEOUS SUCH AS LEGAL FEES, PATENTS, LICENSES, AND PERMITS