What you can learn from your Cash Flow Statement & Balance Sheet

Balance sheets. Cash flow statements. Operating expenditure. Economies of scale. EBIDTA. The list goes on.

As a business owner, cutting through the jargon of business accountancy can be a real headache. But it’s your responsibility, as a limited company director, to track the financial health of your business. You need to be able to understand your company financials and recognise how your business is performing.

So, with some expert advice on interpreting balance sheets and cash flow statements, here’s Keith Tully (below), Managing Director at Real Business Rescue, with how you can use data and information to fine-tune your company’s spending, better structure your savings and plan future investments.

As Keith suggests, “conducting a simple sweep of your cash flow statement and balance sheet can provide a quick snapshot of your financial position. If your company is rocking in and out of danger zones, this can pinpoint pressure points and help forecast whether your business is on track to run out of cash or be overwhelmed with debts.”

If this isn’t your bag, though, don’t worry. You can always enlist the support of a professional, tech-savvy accountancy firm. It’s the smart way to do business.

Real Business Rescue are part of the Begbies Traynor Group. They provide business debt help to company directors and business owners in financial distress.

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1. What can I learn from my cash flow statement?

Keith Tully: ‘Company cash flow is the rate of cash running in and out of the business. This can be closely assessed by generating a cash flow statement.’

‘Cash flow is used to maintain company operations and pay expenses essential to the daily running of the business. Without sufficient company cash flow, your business could quickly decline as cash depletes and you no longer have the funds to meet company liabilities. The prospect of company liquidation may appear closer for a business with poor cash flow, as it doesn’t have enough funds to operate.’

‘A cash flow statement will forensically analyse profitability and answer whether your business is well-positioned to meet financial obligations. The statement will help forecast if your business has the liquidity to survive, cover unexpected liabilities, and meet costs.’



2. What support is available for cash-poor businesses?

KT: ‘If your business is suffering from a shortfall of cash and you are therefore struggling to pay creditors, you will need to take action to stop your business from rapidly deteriorating. The longer you wait, the more irreversible the damage and the harder it will be to save your business from collapsing. The Covid-19 pandemic has inevitably strained company cash flow for businesses of all sizes, worsening company balance sheets.’

‘If you are in VAT, Corporation Tax or PAYE arrears with HMRC, you may be able to restructure your payments through a Time to Pay Arrangement (TTP). HMRC is a common creditor for many small businesses, which is where a TTP can provide relief and make way for an affordable payment arrangement typically spanning 12 months.’

‘Furthermore, if your business is in grave financial difficulty, you may face legal action from creditors that could lead to compulsory liquidation. A Company Voluntary Arrangement is a formal insolvency procedure that can help you negotiate repayments with creditors under the guidance of a licensed insolvency practitioner. This payment plan will be based on your affordability to help get your business back on track.’



3. What can I learn from my balance sheet?

KT: ‘Your company balance sheet will track company assets, liabilities and how much is invested in the business by the owner(s). Company assets refer to anything owned by the business that holds financial value, including intangible and tangible assets, such as:
  • Cash: Cash at bank, cash at hand, company reserves, savings accounts
  • Accounts Receivables: Money owed by clients for services, excluding bad debts
  • Inventory: Stock, raw materials, products, goods
  • Intangible assets: Copyright agreements, patents, intellectual property
  • Fixed assets: Business premises, equipment, machinery, tools’
‘Company liabilities refers to money owed by the business, including upcoming payments. From rent, mortgage, and credit facilities, to wages, stock, and debt repayments, it includes both short- and long-term liabilities.’

‘If company liabilities outweigh company assets, your business may be at risk of becoming insolvent. If your balance sheet’s imbalanced, you will need to rebalance the scales. You may seek alternative ways to generate income, such as selling company assets, making strategic investment decisions, or accessing finance.’

‘Keeping a regular track of the financial performance of your business is essential. If your business requires cash replenishment, this can be fulfilled without delay. An accountant can help actively track your financial position at any given time and maintain the health of your business.’

Business accountancy can be a minefield. But help is at hand. Try our technology-led approach today and benefit from the experience and expertise of our business accounting specialists, as well as some of the best software on the market. Switch to Danbro Business today.

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