What These 3 Simple Analytics Tell You About Your Financials.

Cash flow: your bottom line—really

Your cash flow statement shows the flow of cash in (how much cash you receive) and out (cash you spend) of your business during a set period of time. Used with your income statement and balance sheet, this is a key way to make sure you’ve got enough to keep going, even when times are tough.

For small businesses who run on tight margins, checking this regularly (monthly) is critical. You need to know if your everyday operations are generating enough money for you to basically stay in business. If you’re running low on cash, you might want to check it more frequently.

The best part about this statement is that it really does show your bottom line of the cash in hand—it doesn’t give you “credit” for money that clients owe you but haven’t paid you yet. It excludes money from loans that you receive, too. It’s a genuine picture of what you have on hand—your ”net cash balance.” You’ll be able to spot patterns that let you predict potential downturns in your cash flow (for example, good months versus bad months; or the best time to pay for major expenditures). You can spot red flags, too (e.g., if the net income you receive from the services you provide is equal to or less than what you’re spending to operate your business,)

But the most important thing about a cash flow statement is that, simply put, it lets you see your liquidity—if you have what you need to stay afloat.

Cash flow runway: when will your small business run out of money?

No one wants to run out of money. But, as we noted previously, it’s tough to run a small business, especially when you’re first getting started. Sometimes, every penny counts. That’s why it’s important to know not just how much money you have on hand today (cash flow statement, see above) but how long you have before you run out of cash (if you were to stop generating revenue). Definitely the worst case scenario, but if you’re a small business and just starting out, there will be months when you spend more than you make. Understanding how long you can keep doing this, literally, is super important.

If you generate more cash than you spend, that’s known as a positive cash flow. If you spend more than you generate (if you have to dip into your savings), that’s known as a negative cash flow. For example, if your net burn rate (how much you generally spend a month for payroll and other expenses) is $20,000 a month and you have $100,000 in the bank, you know that you have 5 months to start generating more cash (a positive cash flow).

Revenue growth rate: Does your small business have a future?

Revenue (how much money you take in) is one thing. But comparing that figure over time (year to year, for example) gives you the big picture—the trend that tells if you’re actually growing or not. And that’s key for everything from knowing how much to spend on marketing, whether to hire more employees, and even whether to open up a new franchise.