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How Your Business Can Perform a Cash Flow Analysis

Looking at your cash flow gives you a measurement of how your business model is working. You can run a cash flow analysis at any time to create a real-time snapshot of various metrics. 

In today’s blog, The Whitlock Co. will give you some advice on how to perform a business cash flow analysis.

Related Post: 9 Practical Cash Flow Tips for Small Businesses

Why should I perform a business cash flow analysis?

Your cash flow determines if your company has enough income to cover your expenses. 

A cash flow statement is the most reliable way to look at your cash flow. A cash flow analysis might help you secure financing, have conversations with investors, and plan for the future.

How do I perform a cash flow analysis for my business?

A cash flow analysis follows a three-step process.

1. Identify all sources of income.

Your sources of income can vary from month to month. Yes, there is the income you see from sales of products and services as well as regular investments that pay off every month, quarter, or year. Look over your accounts receivable, too.

However, selling assets also counts as income, such as that older piece of factory equipment or outdated computers. Don’t forget passive income from rentals and proceeds from new loans or stock.

Make sure to look at all sources of income over a specified period, usually a month, quarter, or year, to give you a comparison of various time periods.

2. Add up all of your business expenses. 

Business expenses range from hard costs and labor to accounts payable and deferred revenue. Depreciation of equipment, vehicles, and real estate are also expenses.  Don’t forget to include office supplies, which are often purchased monthly or quarterly. If you own company vehicles, add up your gas and maintenance expenses as well as insurance payments.

Make sure to count income tax expenses. You might pay quarterly tax payments to the IRS or sales tax payments to your state or local government.

Like your income statement, add up your company’s expenses for a specific time frame.

3. Organize the data into a cash flow statement. 

Now it’s time to organize your data so you get a big picture of business cash flow.

These reports typically have three sections.

  1. Operating activities. This part of your cash flow statement indicates your cash position on your core business operations. For example, if you’re a manufacturer, your operating activities include buying raw materials and selling the finished products to customers. After subtracting your hard costs (building rent, utilities, insurance) and soft costs (labor), your cash flow should hopefully be a positive number.
  2. Investing activities. Investments can mean many things. You might take company profits and invest them in stocks, bonds, or mutual funds. You could also buy or sell long-term assets like real estate or equipment. Investing activities might be a negative number because your company made a huge purchase that hasn’t paid off yet.
  3. Financing activities. Slightly different from investing, financing activities refer to proceeds from loans or stock that investors buy. Positive cash flow in this section means newly borrowed funds from a bank or issuing stock with expenses coming from repaying loans and buying back company stock.

4. Analyze the Cash Flow Statement

Analyzing your cash flow lets you examine patterns in the numbers. Do you think too much of your income is tied to investments? What if those investments lose their value over time? How can you repurpose proceeds from investments to help your business grow? 

Look at the expenses side of the cash flow statement. Can you lower your expenses in some way to improve your profit margin? What about automating some processes? Can you perform a labor analysis or determine what equipment and software tools you actually need?

How often should I create business cash flow reports?

We recommend performing these reports at least once per month while aggregating them quarterly and annually. Perform your monthly cash flow a few days after the monthly reconciliation with your bank or financial institution.

How can I automate my business cash flow reports?

With the advent of machine learning and artificial intelligence, there are plenty of platforms and software to choose from to help you automate your business cash flow reports. Because there is so much competition, you can find an affordable option.

The software does more than just crunch numbers. It gives you the tools necessary to make relevant decisions for your company. The most advanced models include cash flow forecasting. These platforms compile information from all data points across your computer infrastructure and cloud software to determine what could happen up to a month or two into the future.

And they also dive into aspects that aren’t necessarily in your accounting or finance software. For example, comprehensive analytics tools can tap into procurement software to analyze vendor touchpoints to give you an idea of how best to handle supplier relationships, seasonality, and bulk pricing. 

Another example comes from seasonal revenue due to holiday shopping. Business planning and cash flow forecasting software can help you with insights into winter holidays, whether they are up or down times for your company, by giving you numbers to see when and how there is a dip or rise.

Even with these advanced metrics, you still need the experience and knowledge to make relevant decisions for your company.

Related Post: How to Prepare Small Business for Predicted Recession

Seek advice from business planning professionals

The Whitlock Co. can help your company with relevant business advice based on your numbers. We help privately owned companies with their business planning so they are in the best possible position to succeed.


Contact us or call (417) 881-0145 to request a consultation with our team. We’ll show you the best way forward for your business model.

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