Cash Flow Analysis

Creating Sustainable Financial Performance

Without a Cash Flow Analysis, you might be guessing. That can be a very dangerous choice given what is at stake: healthy profit, completing a project, or worse yet, a total loss.

While sales are the muscles of a business, cash flow is its life blood. Cash flowing
regularly into a company is necessary to pay salaries, buy materials, and keep the lights on and the doors open. Many companies are forced to slow their growth simply because they lack the cash inflows necessary to support cost outflows.

Speeding up the flow – converting sales into cash as soon as possible – and increasing the spread between inflows and outflows to build a cash cushion are essential to the long-term, sustained growth of every company.

Cash flow analysis is the evaluation of cash inflows from:
- Operations: net income with non cash expenses added back
- Financing activities
- Investing Activities
- To assist in setting a budget
- To assist in the purchase of capital assets
- To make sure you can meet your debt obligations
- To be able to see where your cash flow is low and make decisions to improve it
- To assist in valuing a company; the better the cash flow the better the value
Paying cash for capital assets
- Poor inventory turnover
- Not invoicing frequently enough
- Poor collection of accounts receivable
- Taking too high of a personal draw/wage
- Investing too much cash in investments that lack liquidity
- Having employees that are not making your business money
- Paying too much non-deductible interest and penalties to CRA or Minister of Finance due to non compliance
- Double paying accounts payable and ending up in negative balances to vendors
- Finance capital asset purchases
- Structure your expenses to match your cash inflow
- Try to boost your income - diversify your business
- Try to cut expenses
- Try to keep credit card debt to a minimum or pay off monthly as the interest can strain your cash flow
- Refinance debt - consolidate loans
- Try to set aside extra cash each month for emergencies
- Consider leasing assets rather than purchasing assets
- Up to date record keeping
- Chase those accounts receivables!
- Invoice quickly!
- Take a retainer or deposit
- Establish a good relationship with your suppliers
- Keep that inventory turning over

Industry Experts


Colin Toth CPA, CGA, Senior Manager

Claudette Palmier CPA, CGA, Senior Manager



Subscribe to our newsletter

Sign up now to get advice about tax deductions, growing your income and managing your finances delivered straight to your inbox.