Do you hate the numbers aspect of your business? You are not alone! Financials can be a scary and intimidating word for business owners, but the worst thing you can do is avoid them. Understanding your financial statements can improve decision making, decrease risk, and better your company’s operations on a day to day basis.

As a business owner, you may find yourself in the position of seeking financing to build or grow your business. Most business owners will find that obtaining a business loan can be a daunting process, but a very vital part of obtaining a business loan comes down to your financial statements- particularly the cash flow statement.

What is a cash flow statement and why do lenders want to see it? A cash flow statement is a statement showing what cash is coming in and going out the business each month. It is important to note that even if you are cash positive at the end of your month, it doesn’t necessarily mean you are profitable as the cash flow statement also shows injections in cash whether that be from a loan, an owner’s investment, or another injection.

AWE has developed a cash flow statement amongst other resources that can help you fill in your financial statements properly. It is a great resource for your business plan and you can find it here.

Business owners get into trouble with cash flow projections when they don’t take the following into account:

Business seasonality. We all have seasonality in our businesses, even if we aren’t retail. Taking in seasonality into account when producing your cash flow statement will show your lender you know your market and know how to make up for the slow months.
New businesses do not always receive normal terms. As a start-up, you may have to pay for your supply upfront rather than being able to wait 30 days to pay your supplier as you may not have an established relationship. This can affect your cash flow quickly and should be top of mind.
Unanticipated Expenses and Emergencies. Things will not always go as you had initially planned. It is important to set aside a small contingency amount each month to help in difficult times of business.