Sunovis Financial: How Cash Flow Statements Can Help Small Businesses in 8 Ways

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Sunovis Financial and those who specialize in small businesses say that many don't pay enough attention to cash flow statements. Sunovis offers 8 ways cash flow statements can help.

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"Knowing what's up with cash flow is essential to small businesses. It can also help understand how a short-term Micro Loan could help," says Terry Robinson, President of Sunovis Financial.

Accountants and small business advisors, including Sunovis Financial, say many businesses overlook Cash Flow statements in favor of Profit & Loss statements or other means of gauging the business. However, a Cash Flow statement can give a real measure of how much money you really have in the business and then help track specifics.

Cash Flow statements are "critical and seldom used", says KDV, an innovative CPA advisory firm. Businesses simply can't make proper planning only looking at the Profit & Loss statement. Terry Robinson, President at Sunovis Financial, adds, "Cash flow is king for many businesses. And with our alternative cash flow loans, or Micro Loans, knowing cash flow situation is extremely helpful for underwriting as well as for the business owner!"

A statement of Cash Flow starts with the bottom of your Profit & Loss statement — the line that shows your net income. Several adjustments are made to that number. The details are a little complex but a good accounting program or your accountant can calculate this statement for you.

TRACKING THE BIG 8
Once a business has established a way to track cash flow, then tracking of the Big 8 will be easier, and helpful to have a handle on your business. Many software programs can automate tracking for many of the following, as well:

1) Your Assets
Tracking your equipment, furniture, real estate and other holdings should be easy. But to have a true idea of the value of your business, you also have to track changes in the value of those assets. More than one small business has found itself located on a piece of land that's worth more than the business itself. Similarly, you also will want to track the declining value of assets such as computers and office furniture.

2) Liabilities
This should be easy — liabilities are what you owe. But what you owe isn't always as obvious as a bill from your landlord. Payroll taxes are a liability that depend on the size of your payroll. Loans are a clear liability, but in repaying them you'll want to be able to track how much of a payment is applied against principal and interest.

3) What's it Costing You to Sell What You Sell?
Advertising, marketing, labor, storage and the catch-all category of overhead — it's useful to know how much it costs you to get a product sold as well as what it costs you to create it.

4) What's Your Gross Profit Margin?
This is calculated by dividing your total sales into your gross profit. If your gross profit margin is staying consistent or trending upward, you're probably on track. Being able to track a declining margin can help you understand if you need to adjust your prices or your costs. In the worst cases your gross profit and profit margin disappear altogether. At that point, you'll be like the fellow who lost money on every sale but figured he could make it up in volume. Don't do it.

5) What's the Value of Your Accounts Receivable?
This is the money you are owed. If accounts receivable are on the rise, you may be getting a warning that the folks you sell to are starting to stumble.

6) What's Your Average Collection Time on Accounts Receivable?
This is probably one of the most aggravating pieces of information for cash-strapped businesses, because it tells you how many days you're acting as 'banker' for the people who owe you money.

7) What Are Your Accounts Payable?
The flip side of accounts receivable. An increase in your accounts payable may merely reflect a larger amount of purchases overall. But an increase that hasn't been planned or managed can be an internal warning that your company's financial strength is waning.

8) What's Happening With Your Inventory?
There are occasions, even in this just-in-time business world, when building up a significant inventory can be a good thing. If prices for items you sell or use in production are relatively low, putting some of your money into inventory may make sense. Being able to track your inventory can tell you whether business is increasing or slowing down. It also tells you how much money is tied up in this unproductive asset.

Knowing what's up with your cash flow is essential to your business. It can also help you understand how a short-term Micro loan could help you, and will assist the Underwriters to have a good picture of your business, too, says Robinson.

About Sunovis Financial
Sunovis assists small businesses with SBA loans as well as short-term Micro loans (or alternative cash flow loans.) Sunovis Financial is a nationwide company based in San Francisco whose mission is: "Rebuilding the U.S. economy, one business and one loan at a time."

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