If you want your Maine-based small business to grow and remain competitive, a solid financial plan and a well-conceived strategy can mean the difference between boom and bust.

The most important starting point is a cash-flow analysis.

Looking at your company’s cash flow statements you as a business owner to understand the cycle of inflows and outflows that stem from accounts receivables, inventory, accounts payable and credit terms. This will also identify any problem areas that need improvement.

A cash flow statement will make important distinctions clear, such as the differences between cash and sales or inventory. While your Statement of Income may show a ledger full of credit sales, it doesn’t really matter if you can’t pay your employees until you collect on those accounts.

By the same token, a large amount of inventory may represent great potential, but your business’ bills need to be paid in cash, not by whatever is in your warehouse.

After analyzing your company’s cash flow statement, the next step is to create a cash flow projection. This important cash management tool lets you see when expenditures are likely to be too high or when you can expect a cash surplus. The cash flow projection also provides a good idea of how much capital investment your small business may need.

Cash flow statements and projections help your business in other ways, too. If you are going to approach a lender for financing or potential investors for a cash infusion, they are going to want to see a cash flow statement, as it shows how you manage your available cash. If you have borrowed from the lender before, the loan officer is going to want to see what you did with that earlier cash. If you managed the money well, your cash flow statement will provide the evidence.

Also, if your business hits seasonal low-cash cycles every year, cash flow statements and projections will highlight those periods. Knowing that, you can shop around for low-interest short-term financing to help keep your company running smoothly through those anticipated lean times. If your company hasn’t projected those cash crunch cycles, you may wind up letting your bills slide and damaging vendor relationships, or scrambling to arrange emergency financing that is likely to carry a high interest rate.

Knowing when you are approaching the threshold of a traditionally high or low cash period also can help you determine the timing for launching a product or service or the need to trim or expand your company’s staff. In the meantime, your company’s cash flow projection will show you, as well as potential lenders and investors, what to expect six months or a year from now. Cash flow projections are the key to making smart and profitable business decisions.

You may be wondering why you need a cash flow statement if your company has a Statement of Income. The answer is that certain expenses don’t show up on your Statement of Income for some time. For example, you may have spent a large amount of cash to increase your inventory, but it won’t be reflected on your Statement of Income until that warehouse stock translates into sales and cost of goods sold.

Similarly, while you may be celebrating the fact that you paid off a large business debt and thus improved your company’s balance sheet, unless the interest you were paying on the debt was enormous, your monthly Statement of Income won’t show much of a difference.

Moreover, certain expenses don’t affect cash, such as depreciation, amortization and depletion. These items need to be adjusted for on your company’s cash flow statement.

Consult with Filler & Associates to help ensure you have the reliable cash flow documents your company requires to remain thriving and profitable.