11 Chapter 11- Cash Flow Statements
Cash Flow Statements
Cash flow statements are an essential financial tool because they provide a clear picture of the cash coming into (inflows) and going out of a food & beverage operation (outflows) over a specific period, typically a month. Unlike a balance sheet (snapshot at a point in time) or an income statement (profitability over a period), the cash flow statement focuses solely on cash movement through the business.
By understanding and analyzing the cash flow statement, a food & beverage operation can gain valuable insights into the business’s financial health. The statement shows if the company generates enough cash sales to cover its short-term obligations, such as payroll, accounts payable, and occupancy costs. The cash flow statement can help a food & beverage operation assess its ability to pay debt (banks and vendor) obligations. The less cash a business has, the more difficult it is to pay its debts and other financial obligations.
Cash flow statements can determine high operational costs, as food & beverage businesses typically have high operating costs due to ingredients, rent, payroll, and other expenses. A cash flow statement helps ensure enough cash is available to cover these ongoing needs and avoid being short on cash or having a negative cash flow. Additionally, sales in food & beverage operations can be impacted by seasonality and large swings in food & beverage significantly depending on the season or even the day of the week. A cash flow statement helps predict and manage these fluctuations by showing how much cash is coming in and going out at different times.
It is possible for a business to show a profit, even a large one, and still have a negative cash flow. A negative cash flow is when you have more cash leaving the business than coming in. There are several reasons why a food & beverage business may have a negative cash flow, such as business and customers who owe you money (accounts receivable) not paying you on time, and high inventory values. A strong cash flow suggests the company has the resources to invest in new equipment, marketing initiatives, or capital investments.
Understanding and interpreting cash flow statements along with the balance sheet, income statement, and operating budgets are crucial for food & beverage businesses to make data-driven decisions, determine their financial health, and their ability to navigate financial challenges and future opportunities.
Cash Flow Statement Terminology
- Collections
- Cash sales or cash from a new loan or investment.
- Borrow/Payback
- Borrow, cash in from a new loan
- Payback, cash used to make an installment loan payment
- Change
- Total cash in minus total cash out
- Beginning Cash
- The cash amount is found at the beginning of the balance sheet.
- Ending Cash
- Equals change plus beginning cash.
- Negative Cash Flow
- When a business has more cash going out than coming in.
The Cash Flow Statement
Below, you will find a simplistic cashflow statement where you are given the completed balance sheet at the beginning of the month and monthly financial information (the dollar amounts for cash transactions for the month). The statement is color-coded, just like the balance sheet was, to help you see where the dollar amounts in the cash flow statement are coming from.
Note:
- In the statement below, you will find the information provided to you in the Monthly Financial Activity, and that information is color-coded below in the cash flow statement.
- The $2,100 for inventory paid on account credit does not show up in the cash flow statement because a cash flow statement does not track purchases made on credit but tracks payments for inventory or other assets purchased with credit.
Here is how the cash flow statement was calculated:
- Collections: the $41,000 was given to you as Cash Sales Food & Beverage
- Inventory: we took Inventory Purchased with Cash of $8,800 and Cash Payment for Inventory Purchased on Account of $2,400 and added them together to get an Inventory of $11,20.
- When we pay for inventory purchased on account and then pay a portion or the entire bill we use cash and is included in the cash flow statement.
- Fixed Asset: in this example, we had no fixed assets, but if we did purchase a fixed asset, it would show up in Cash-Out
- Prepaid Expense: in this example, we had no prepaid expenses, but if we did prepay and expense, it would show up in Cash-Out
- Operating Expenses: were given to you as Operating Expenses Paid Cash.
- Owner Capital investment: in this example, we had no owner capital investment, but if we did, it would show up as Cash-In
- Borrow/Payback: in this example, we did not receive a new installment loan (bank loan), but if we did, it would show up in Cash-In. However, we made an installment loan payment of 4,000, which shows up in Payback Cash-Out.
- Total: we add up the Cash-In column to get the total Cash-In, and we add up the Cash-Out column to get the total Cash-out
- Change: is found by taking Cash-In of $ 41,000 minus Cash-Out of $42,000.
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- $41,000 – $42,200 = -$1,200 (negative)
-
- This is known as a negative cash flow
- Beginning Cash: was found at the top of the beginning of the month balance sheet under assets as cash ($41,000)
- Ending Cash: is found by taking Change of -$1,200 plus Beginning Cash of $32,000
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- -$1,200 + $32,000 = $30,800
Media Attributions
- Screenshot 2024-08-02 at 9.31.12 AM
