.png)
- Deneen McDonald
- 30 minutes ago
- 5 min read
As a business owner or nonprofit leader, have you ever been confused about the financial performance of your organization? You see a healthy profit on the P&L report, but when you check your bank account, the numbers don't match up. And you wonder, where did all that profit go?
If this has been your experience, don't worry, you're not alone. I've met many leaders who've had similar misunderstanding of the differences between profit and cash flow. Profit communicates the overall success of your business, but cash flow predicts if your company will survive that slow season. Without cash flow, you can't pay staff, purchase inventory, or manage the overhead expenses of your business.
At Mind Your Biz our goal is to help you move beyond the confusion caused by all the numbers, so you can focus on leading your organization, and do it well.
What is Cash Flow?
In the simplest terms, cash flow is the movement of money in and out of your business over a specific period. If you think of your business bank account as a bucket. Money (cash) comes in from customers, grants, or loans. This is the water that fills your bucket. Money (cash) going out for expenses like payroll, insurance, and supplies is the water draining from it. A cash flow statement lets you know whether your water level in the bucket (your cash) level is rising or falling.
Profit is not the same as cash. Profit is an accounting measure calculated as revenue minus expenses, but revenue itself isn't cash. A company can record a sale before it actually collects payment for it. That timing gap means a profitable company can run out of cash if it doesn't manage cash flow effectively.
The “Big Three” of Financial Reports
To truly understand your organization's financial health, you need to look at three key reports together. Each tells a different, but equally important, part of your financial story.
Also known as the Income Statement, the P&L is your financial report card. It summarizes your revenues, costs, and expenses over a period (like a month or a quarter) to show whether you were profitable or not. It answers the question: Did we make money?
The Balance Sheet is a snapshot of your company’s financial position at a single point in time. It follows the fundamental accounting equation: Assets = Liabilities + Equity. In other words, it shows what you own (assets), what you owe (liabilities), and your net worth (equity). It answers the question: What is our financial worth right now?
3. The Cash Flow Statement
This is the bridge between the P&L and the Balance Sheet. It reconciles the net income (from the P&L) with the change in your cash balance (on the Balance Sheet) over the same period. It shows exactly where your cash came from and where it went. It answers the question: Why did our cash balance change?
How to Read a Cash Flow Statement
A cash flow statement is broken down into three sections. Reading it from top to bottom tells the full story of your cash.
Cash Flow from Operating Activities: This is the cash generated by your day-to-day business operations. This is cash coming in from your customers and cash going out to pay for items like salaries, supplies, and other operational expenses. For most businesses, a consistent, positive cash flow from operations is the primary sign of sustainable health.
Cash Flow from Investing Activities: This section tracks cash used to buy or sell long-term assets like purchasing new equipment, buying a building, or selling an old company vehicle or property. Large negative numbers here aren’t necessarily bad; they often mean you're investing in growth.
Cash Flow from Financing Activities: This section shows cash moving in or out through loans, paying down principal on existing debt, owner contributions, or paying out dividends. It shows how you are funding your operations and growth.
Understanding your cash flow is the difference between leading with guesswork and leading with strategy.
How to Run Cash Flow Statements in QuickBooks Online
QuickBooks Online (QBO) makes accessing this powerful report simple. Just follow these steps:
Log in to your QuickBooks Online account.
On the left-hand navigation menu, click on Reports, Standard Reports.
Scroll down to the section titled Business overview.
Find and click on Statement of Cash Flows. You can also use the search bar at the top of the reports page and simply type "cash flow" to find it quickly.
Once the report is open, you can customize the Report period at the top. You can choose a report period like ‘This Month,’ ‘This Quarter,’ or select a custom date range. I recommend looking at this on both a monthly and quarterly basis.
Click Run report to see the updated data.
Now you have the data. By analyzing the three sections, you can start to see the story your cash flow is telling about your business.
Using Cash Flow for Smarter Decision-Making
Running the report is just the first step. The real value comes from using it to make strategic decisions.
Here’s how you can put your cash flow insights to work:
Improve Forecasting: By analyzing historical data, current cash flow trends, and assumptions, you can more accurately project things like future revenue, expenses and cash flow for the next quarter and even the next year. Good forecasting lets you see a cash shortfall coming in time to line up financing, or plan for a busy season. It is forward-looking, giving you a roadmap to strategically plan for what lies ahead.
Plan for Growth: Growth usually costs cash before it generates cash. Are you thinking of hiring a new team member or launching a new service? Your Statement of Cash Flows helps you determine if you can realistically afford the new recurring expense.
Manage Debt and Capital: Cash flow planning lets you project how much cash you'll have on hand at any given point, which is the key to handling debt and big purchases safely. You can schedule payments when cash flow can support them, or purchase equipment during months when cash is at a surplus.
Making the Cash Flow Statement a regular part of your financial review process provides invaluable insight into the stability of your business. Cash flow analysis is a powerful tool that lends itself to proactive decision-making and sustainable success.
Feeling overwhelmed by your numbers? At Mind Your Biz, our bookkeeping services take the numbers off your plate and turn them into clear financial statements you can use, so you know where your cash stands and what it's telling you. We'd love to work together with you. Schedule a consultation with Mind Your Biz today and let's get your cash flowing in the right direction.
