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Cash Flow Analysis

Cash flow statement is a financial statement that records how cash flows in and out of a business during a specified period. This statement gives a well-rounded picture of a business’s financial health by determining where a business is earning and spending its cash. Performing a cash flow analysis is essential in success of any small business.

If a cash flow analysis shows a business is running short of cash to meet expenses, the business can plan ways to cut costs, obtain financing or take further steps to accelerate income production. If a cash flow analysis shows that a business has additional cash on hand, a business can plan to invest this cash in capital assets or other investments to produce additional income that can help the business.
Cash flow statements can be prepared through two different methods, indirect and direct. Both methods include the following categories:

Cash flow from Operating activities: This section includes any cash activity that is related to actual operating business of the corporation (e.g., inflow of cash: Sales/paid receivables; outflow of cash: amounts paid to suppliers, employee payroll and any taxes paid on core business function)
Cash flow from Investment activities: This section includes any cash activity that is related to purchase and sale of assets that are not related to daily operations of the business. (e.g. inflow of cash: investment income, capital gains from non-business related assets; outflow of cash: purchase of investments or any capital assets that will not be used in daily business activities)
Cash flow from Financing activities: This section includes any cash activity in relation to financing of the business. (e.g. inflow of cash: attaining a loan for business activities, selling shares of the corporation to raise capital; outflow of cash: making payments on the business loan)
Once a cash flow statement is prepared, if the closing balance is higher than the opening balance, a business has a positive cash flow. If it is lower, than the business had a negative cash flow during that period.
By examining the cash flow statements, a business owner can brainstorm some ideas that can be used to remedy any cash flow problem that is currently faced by the business. Some examples of these ideas include:
– Buy less inventory if an adequate amount of stock is available for production or sale.
– Pay vendors later than usual (but remain within the due date)
– Reach out to late paying clients to speed up the payment process.
– Raise prices if required
– Adjust staffing to reduce payroll expenses.
– Find short term financing to achieve more cash.


If you require any help in cash flow analysis or other parts of your business, please contact us.
This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. © 2021 Shajani LLP.

Shajani LLP is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning services