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Are you flying blind in business? Know your numbers.

James Morris
Published by:
James Morris
Published on:
January 15, 2015
Modoras Accounting (QLD) Pty Ltd ABN 81 601 145 215
Are you flying blind in business Know your numbers

Many businesses fail due to cash flow problems. Even companies that are profitable often have to shut their doors permanently because they can’t make certain crucial payments at the required time. Fortunately, by regularly analysing your cash flow you can easily avert this situation and continue to reap the benefits of your business for years to come.

The purpose of cash flow analysis is to keep a close eye on how much your business has in liquid assets during any time period, such as the current month. Careful, accurate and consistent management helps you to anticipate any likely cash flow crunches and to set aside money for emergencies or for business opportunities. With cash flow analysis you can also foresee your future short-term financing or credit line needs.

The key to preparing any report for your business is to ensure you have correct up-to-date financial information. Most business accounting software have reports that track your business cash flows. These reports are the foundation for the preparation of your cash flow statements and projections.

Where do you start?

The statement usually gets divided into three parts:

  1. Operations;
  2. Investments; and
  3. Financing.


The cash flows from operating expenses should include all income and expenses that result from running your business. All cash receipts should be listed as income, including any payments from previous sales that come in during this month. Expenses in this section might include salaries, rent, taxes, supplies and inventory. The crucial thing to remember, though, is to include only income and expenses that have actually happened, not the ones that have been deferred to some future time.


The section on investing activities tends to reflect the priorities of your business. If you are running a start-up, perhaps you invest in equipment or intangible assets, such as copyrights. Perhaps your business has acquired a subsidiary or some property, or is instead selling such assets. All of these transactions should be listed in the investments section of your cash flow statement.


The third section should cover the financing events that occur during the month, such as loans that you have received and payments to financial obligations. If you take an owner’s draw, it should also show up in this section.
Managing a consistent positive cash flow may seem easy. But are you maximising it or stashing it as owners’ equity? Re-investing in your business is vital for growth. And what about being prepared for a period of negative cash flow? If these times are unplanned, you may have to shut up shop! There are many solutions available for a period negative cash flow. A few options may include:

  • increasing sales through business growth;
  • foregoing her owner’s draw (now that’s no fun!);
  • establishing a line of credit (a short-term fix); and
  • reducing costs.

You can keep unnecessary crises away from your business by keeping a close eye on your cash, income and expenses using cash flow analysis. Talk to a Modoras Accounting Professional and make sure you don’t fly blind this financial year.

IMPORTANT INFORMATION: This blog has been prepared by Modoras Accounting (QLD) Pty. Ltd. ABN 81 601 145 215. The information and opinions contained in this blog is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individuals’ personal circumstances have been taken into consideration for the preparation of this material. The information and opinions herein do not constitute any recommendation to purchase, sell or hold any particular financial product. Modoras Accounting (QLD) Pty. Ltd. recommends that no financial product or financial service be acquired or disposed of or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this blog can change without notice. Modoras Accounting (QLD) Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Accounting (QLD) Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Accounting (QLD) Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication. Liability limited by a scheme approved under Professional Standards Legislation.

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