Quick Tips to Prepare Cash Flow Analysis to Grow your Business
                     The two highly important financial statements that every business organization must prepare to smoothly 
run the monthly cycle are -income statements and cash flow analysis statements. The income statement 
gives an overview of the company’s profit or net income whereas the cash flow statement throws light on 
the current cash position of the company.
Cash flow analysis has been an important part of the outsourced accounting services as it reflects the 
difference between the cash available at the beginning of an accounting period and at the end. When all 
the cash transactions like loan payment, cash sale of assets, monthly operating expenses, etc., are 
analyzed and processed, then the real financial picture comes in the front. Thus, it is essential for every 
business organization to run cash flow analysis to ensure – stability of cash position.
Tips for Flawless Preparation of Cash Flow Analysis Statement
Cash is the blood that pumps through business organizations to smoothly run their daily operations. Cash 
flow analysis is like a blood test that analyzes any kind of deficiency in the firm’s financial health. Thus, 
it is highly recommended by CapActix to all business organizations to run cash flow analysis and for this,
they can hire accounting firms to help them out. And, accounting firms can select the option of 
outsourcing to offshore accounting firms to even smoothen up the process.
To have a clear view of the cash position of a business identity, it is required to perform an error-free cash
flow analysis and to perform flawless analysis – the following tips will be helpful –
1.Take Accounts of Two Years into Consideration
To get a complete cash flow analysis report, the last two years of the company’s balance sheet accounts 
need to be put under consideration. Comparing the difference between the last two years’ cash accounts 
will show the right current cash position of a firm.
The complete cash flow analysis can’t be drawn without comparing some vital information like profit or 
loss, depreciation, information from the comparative balance sheets, current assets account, liabilities 
balance, etc., After analyzing the change in the two years of accounts – it will be easier to draw the 
current cash position correctly.
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2.Find Out Breakeven Point
The best tip to prepare a flawless cash flow analysis would be determining the breakeven point of the 
company. It won’t impact the cash flow, but it will provide an early goal to target in the future because 
facing negative cash flow will be a bad thing for the business.
To determine the breakeven point, an accountant has two options either unit-based or dollar-based 
analysis. In both methods, fixed costs are used as a base because they are stable variables and won’t 
fluctuate like rent or utility bills. For the calculation of breakeven point, always start with fixed costs plus 
revenue for the period and subtract from variable costs. And, finally divide fixed costs by that value.
However, when you are following the dollar method, then the foremost contribution margin is calculated. 
To evaluate this – take the price of the commodity and eliminate variable costs and then divide fixed costs
by contribution margin.
3.Always Maintain Cash Reserve
This needs to be number one tip – a sustainable amount of cash should be set aside so that business 
organization never runs out of it. The survival of a business depends on how you pull through cash 
drought time. If a certain amount is available in the bank account, then it will be smoother for businesses 
to manoeuver from shortfalls. The cash reserve must have the potential to survive a business expense for 
at least 4-6 months of time. This reserve can help the business organization to refuel their operations 
during the temporary market down. It will keep businesses floating when the market prices hike up.
4.Evaluate Free or Surplus Cash
Free cash flow calculation is highly beneficial for small and start-up business organizations as they 
always need extra cash to boost their operating system. Free cash can be simply explained as – the cash 
that a company has left after it pays for any capital expenditures it makes, like a new plant or equipment.
It is like an extra oxygen cylinder for the good health of business when things aren’t going as per the 
initial plan. The push of free cash will help businesses in becoming stronger and survive uncertain 
situations.
5.Focus on just Management
It is the primary tip for cash flow analysis calculators that always chase behind the breakeven point as a 
benchmark. Once a company reached the breakeven point, then it isn’t going to sink. Now, it will be a 
perfect opportunity for the analyzer to look at – accounts receivable, accounts payable, and shortfall and 
find any sort of issue in them.
However, if the situation arises where the companies are at the breakeven point, but their free cash flow is
still tight, then it’s time to do deeper research. Here – the analyzer has to see whether the company needs 
to increase cash flow by acquiring a new customer or needs to cut back on the expenses and modify 
internal factors.
When the breakeven point has just been achieved, then it is a perfect time to make major changes because
during this period even small changes will leave a major impact. Moreover, when it is properly 
established and the number is higher, then there’s so much on the stake that can impact the financial 
health of the company. Thus, once you are successful to take your client’s firm to the golden breakeven 
point, then it’s time to focus on cash flow management rather than profit.
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Here you can read 6 Steps to Improve your Cash Flow Position with Effective Accounts Payable 
Management
6.Delegate Cash Flow Monitoring to Trustworthy Employee
It is a core tip to assign cash flow monitoring to a trustworthy employee only. The trustworthy cash 
analyzer should have advanced knowledge in finances, vast experience, and the ability to handle tricky 
situations. If your accounting firm has an employee that can handle cash flow task with the bandwidth, 
then go for it. However, if you don’t have a trustworthy employee in your company with the required 
bandwidth, then you can outsource it.
Sail Smoothly with Cash Flow Analysis
If you are able to maintain positive cash flow, then your clients will be happy with you as their business 
can survive now freely. To maintain a positive cash balance, it is essential to always keep income 
statements and balances sheets up to date. Overall, cash flow analysis is yet another highly important 
accounting process that needs to be catered to with vigilance.
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