A cash flow statement is a financial report that shows where your money is coming from and where it’s going. It’s also known as a ‘statement of cash flows’ or a ‘CFS’.
At first glance, a cash flow statement looks similar to an income statement. But cash is different to income – cash only includes spendable money. Income includes fixed term assets, long term assets and sales made on credit.
Cash flow statements show whether you’re able to cover short term expenses like bills and staff wages. It is also useful for investors, as it shows how well your business can bring in money.
A bank statement is a document that shows all the transactions that have happened in your bank account. This includes deposits, withdrawals, interest earned, bank fees paid and the total balance on the day the statement was sent.
Bank statements are usually sent every month, and show the transactions of that month. Some banks post bank statements to the account holder. But online bank statements are becoming much more popular. You can often view these on your bank’s website or mobile app.
There can be times when your financial records might not be the same as your bank’s. Bank reconciliation involves comparing these records and identifying any differences between the two. This is important for keeping track of your business’ money.
There are a few reasons the balance on your records may not be the same as the bank’s:
When someone hasn’t yet cashed a cheque you’ve sent: The money owed from that cheque is still in your bank account – but it’s no longer yours to spend.
Changes to bank accounts at the end of a month: This can happen when you withdraw or deposit money just before the bank sends a statement. Those changes to the account might not show until the following month’s statement.
Deposits in transit: Deposits you’ve made and recorded in your books that haven’t yet processed through the bank.
The bank deducts loan payments: The bank can deduct money for loans before you enter that information into your systems.
For example, if you’ve sent someone a cheque but they haven’t cashed it yet. That money is still in your bank account – but it’s no longer yours to spend.
If you withdraw or deposit money just before the bank sends a statement, those changes to your balance might not show up. This normally happens at the end of the month. If you make a deposit to the bank on October 31, for example, it might not show on the bank’s records until the November bank statement.
Another example is when the bank deducts money for loans before you’ve entered that information into your system.
Bank reconciliation helps you identify these cases so you know exactly how much money is available to your business. It’s also needed to identify any cases of human error, bank charges and possible fraud.
Your net profit margin shows what percentage of your sales is actual profit. This is after factoring in your cost of goods sold, operating costs and taxes. To calculate your net profit margin, divide your sales revenue by your net income.
Net income ÷ total sales = net profit margin
The result is your net profit margin. You can multiply this number by 100 to get a percentage.
Let’s say your business makes $12,000 in sales, it cost you $8,000 to make your products, and you spent another $2,000 on operating costs (such as overhead and taxes).
Total sales - (cost of goods sold + operating costs) = net income
$12,000 - ($8,000 + $2,000) = $2,000
Net income ÷ sales = net profit margin
$2,000 ÷ $12,000 = 0.1667
0.1667 × 100 = 16.67%
In this example, your business would have a net profit margin of 16%. In other words, 16% of your total sales revenue is profit.
A financial statement is a report that shows the financial information of a business. There are four main types of financial statement:
Balance sheet: a snapshot of your business’ financial condition at a single point in time, such as 31/12/2016. Shows your business assets, liabilities and owner's’ equity at that time.
Profit and loss statement: also called an income statement. Shows your business’ revenues, costs and expenses over a period of time, such as 1/1/2016 to 31/12/2016.
Cash flow statement: also called a statement of cash flows. Shows changes to the cash coming into and going out of your business over a period of time. Only records cash (not all income). Shows whether you can cover short term expenses like bills and payroll.
Statement of movementin equity: also called a statement of retained earnings. Shows changes in the equity of your business for a set time period. In other words, changes in how much money your business keeps (rather than pays out to shareholders).
Combined, these statements provide a good view of the financial health of your business.
Gross profit is the amount of money your business makes from sales after deducting the cost of making and selling your product. This amount is before you pay operating costs, payroll, tax and overhead.
Gross profit reflects how profitable a product is. The less it costs to make, and the higher you can sell it for, the larger your gross profit will be. Gross profit is also known gross income, and appears on the income statement.
To write a cheque, you’ll need to fill out the necessary spaces on a blank cheque.
Date of payment: when payment is being made – written as day/month/year.
Payee: who you’re making the payment to. This can be a person or a company.
Amount being paid: In the blank space next to the dollar sign, write the amount being paid. If there are no cents, put two zeros. For instance one hundred and twenty three dollars would be written as 123.00. In the blank space before 'dollars', write the amount being paid again, this time in words. You may like to add the word 'only' at the end if there are no cents.
Description of payment: for example 'electricity bill'. This is optional, but it helps the payee remember what the payment is for. It also helps with bank reconciliation.
Signature: signing the cheque confirms the payment is under your name. Keep in mind you must use the same signature you used when you opened your bank account. You may also need a signature from the business if it's from a general business account.