IT Managers Need To Understand What A Cash Flow Statement Is

by drjim on October 18, 2012

A cash flow will show you where all of the Benjamin's are going

A cash flow will show you where all of the Benjamin’s are going

In the world of high finance, there are three primary financial reports that your management will use to tell you how a firm is doing: income statement, balance statement, and the cash flow statement. An IT manager needs to be aware of what each of these reports contains and how to read them. The cash flow statement is one such report and, unfortunately, it’s probably both the least used and least understood. Let’s solve that problem right now…

What Is A Cash Flow Statement?

So before we dive in too deep, let’s make sure that we all understand what we’re talking about here. Just exactly what is a cash flow statement? The whole purpose behind a cash flow statement is to tell the reader why the company’s amount of cash changed. How did the company get more cash and what happened to the cash that the company had?

A cash flow statement starts out by documenting how much cash the company had on hand at the start of the reporting period. Then, much like you probably do for your personal checking account, it goes through and documents how the company acquired and spent cash during the period. The final line in a cash flow statement is how much cash the company had when the period came to a close.

As an IT manager, your company’s cash flow statement is important to you. The reason that you care is because when you are preparing your budget for your IT dream team, it could be quite helpful to take a look at the company’s current cash flow projections. If the company is low on cash, then you’ll want to limit the amount of funding that you request. However, if the company is swimming in cash, then you’ll know that it’s probably ok to ask for additional funding.

How Do You Read A Cash Flow Statement?

A cash flow statement has a lot to tell an IT manager. One of the most important things that you can determine by reading a cash flow statement is how successfully your company is able to turn accounts receivable (promises by customers to pay you) into cash. This is a critical piece of information to have because it will ultimately determine if your company is going to be able to keep its doors open.

There is a simple equation that you need to keep in mind when you are reading a cash flow statement:

Cash Flow from Profit + Other Sources of Cash – Uses of Cash = Change in Cash

An important point to realize is that the cash flow statement does not measure the same thing as the income statement. The key difference is that if there is no cash transaction, then it can’t be reflected on the cash flow statement.

What Does All Of This Mean For You?

The cash flow statement is one of the three primary financial statements that are used to run a company. Because of its importance, IT managers need to make sure that they understand what a cash flow statement contains and how to read it.

A cash flow statement tells how much cash the company had on hand at the start of reporting period and how much it has on hand at the end of the period. The amount of cash that the company has at any point in time is of critical importance to an IT manager because it will tell you if the company is going to be in a position to fund your requests for new projects, software, or hardware.

Reading a cash flow statement is not something that an IT manager is going to be sitting around doing every day. However, on a regular basis it is an activity that you should do – such as when your company issues its end of quarter or annual reports. Show some leadership and make sure that you understand how much money the company has on hand to fund projects and initiatives. This is the key to being able to explain to your team just exactly what is going on at your company.

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World IT Management Skills™

Question For You: If you know that your project is going to need more funding, but the cash flow statement shows low cash reserves, what should you do to increase your odds of getting more funding?

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What We’ll Be Talking About Next Time

So IT manager, what is your life like these days? Are you dealing with long hours at work, demanding leadership and customers? Internal departments who don’t want to talk to you let alone do what you need them to do? I guess the concept of finding inner peace must seem pretty far away most days. Over at Google, their management is experiencing everything that you are experiencing – and more of it. How do they deal with the lack of peace in their lives?

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