3 Reports to Help Manage the Cash in Your Business and Investments

Reporting is a tool that is often underutilized in a wealth strategy. It is usually perceived as too complicated or too confusing and that scares many people away from using it on a regular basis.

When I talk about using leverage in a wealth strategy, this includes using reporting. Reporting is a great example of leverage. Leverage is doing more with less. With reporting, you can get more information about your business and investments by looking at less information and spending less time on it.

Here are 3 reports that are included in just about every accounting software that can be extremely helpful and are a great starting point if you aren't regularly looking at reports.

Report #1: Statement of Cash Flows Many business owners and investors are constantly trying to figure out where their cash goes.

Whether it's your business, your rental properties or your option trading, the Statement of Cash Flows report tells you exactly where your cash goes.

The report starts with the beginning cash balance and shows how cash goes in and out to arrive at the ending cash balance.

Here is an example of how the Statement of Cash Flows report helps me analyze my rental property investments.

When I pull a Profit & Loss report (also called an Income Statement) for my rental property investments, I see a net loss of $20,000.

This loss information is helpful in my tax planning but not when I'm trying to assess how my properties are performing.

The net loss is due to large depreciation deductions, which are non-cash deductions, claimed on my rental properties.

In order to figure out my real cash flow, I have to pick apart the Profit & Loss report. While I want this information, I don't want to spend a lot of time digging for it. This is why I love the Statement of Cash Flows report - it does the work for me!

The Statement of Cash Flows starts with the net loss from the Profit & Loss report and makes all the non-cash adjustments for me.

For example, it adds back depreciation.

It factors in cash spent buying a new property - which isn't on the Profit & Loss report because it's an asset that gets reported on the Balance Sheet.

And, it shows the cash I spent to pay down the principal on my mortgages. Remember that if your mortgage payment includes principal and interest, then the interest portion is included in the Profit & Loss report but the principal portion is not.

The Statement of Cash Flows answers the nagging question - where does my cash go!

Report #2: Accounts Receivable Report As a business owner and investor, I want to know who owes me money.

The Accounts Receivable report gives me this information instantly so my team and I can take the necessary steps to make sure our money is received when due.

I also use the Accounts Receivable report to study my customers' habits. It is really helpful to know who pays me quickly, and who is very slow to pay me. I use this information to focus my efforts and my team's efforts on customers who pay without any hassle. It also helps with managing those customers who don't pay timely.

Report #3: Accounts Payable Report I always want to pay my vendors on time. The Accounts Payable report is the tool to help me do this. It tells me exactly who I owe, how much I owe and when I owe it.

The Accounts Payable report also helps me identify opportunities to negotiate discounts with my vendors, such as discounts for early payment. Those savings go right to my bottom line.

Start Your Reporting Now If you do not currently have a regular reporting system in place, start now by looking at the 3 reports I shared with you.

Review these reports on a weekly basis. It's important to do this regularly.

You'll find that over time, you'll learn new things from the reports that you can directly use in your wealth strategy.

Putting Them All Together The reports I have shared are all historical reports - they are based on activity that has already happened.

To take your cash reporting to the next level, use the information in these reports to project your future cash flow.

Most accounting software has a forecasting feature to project future cash flow. However, you usually have to put in all the numbers to get that feature to work. Using the above reports is a great starting point to know what numbers to use.

There is also nothing wrong with using a simple spreadsheet to project your future cash flow. The key is doing it!

Projecting future cash flow is a powerful tool in a wealth strategy. It helps with the timing of new investments and with managing the cash needs of existing business and investment activities.

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