By James Pruitt, Senior Staff Writer

Cash flow statements are an important accounting tool. Business owners should issue cash flow statements at least quarterly. Most accountants describe two methods: the direct method and the indirect method. Microsoft Excel can provide the relevant tools and templates.  Google Docs also provides templates for both methods. A short description of both the direct and indirect methods are detailed below.

Most businesses use the indirect method, a simple and more efficient approach. The indirect method generally uses a balance sheet approach, an accounting method with a zero-sum view of monetary flow. The indirect method accounts for all activities that affect periodic income, regardless of whether they directly involve cash. Depreciation of a company’s assets is one such example. However, the indirect method lacks the precision of the direct method, which limits itself to direct cash transactions.

Despite the widespread use of the indirect method, the Financial Accounting Standards Board prefers the direct method. The indirect method gives information about periodic accrual of income and debt. However, the direct method offers more specific, traceable information.

What is a balance sheet approach to managing cash flow?  A balance sheet approach seeks to match credits and debits. A cash flow statement using this method starts with net income, then subtracts and adds debits and credits. Debits and credits may include receivables, payables, long-term debt, equity assets, and inventories, including shrinkage and other considerations.

A balance sheet approach also considers fixed assets, and other assets. The line items include general categories for income and expenses, rather than specific, day-to-day expenses and credits. While the indirect method may offer a simpler process, the level of detail may be somewhat disappointing.

On the other hand, the direct method does not start with a net income. The direct method works through the amounts paid to employees, vendors, and other creditors. Various templates for each method are available online. Each can be adapted to your business.

The best approach for any business depends upon the size of the business and the relevance of its accounting practices.  For example, the following link provides samples for each method: https://spreadsheetpage.com/cash-flow/statement.

Each individual business chooses accounting practices depending on their own needs. Consider both legal and business considerations.  Due to its efficiency, the vast majority of businesses do use the indirect method.  Some businesses may prefer the direct method due to the relevance of fraud, or the need for accurate record keeping. Resources abound that provide templates for creating such statements. For the purposes of most small business owners, the most efficient method will likely prevail. However, the needs and liabilities of each business dictate the best practices within each industry.

VAMBOA, the Veterans and Military Business Owners Association hopes that you have found this article on “Best Accounting Practices for Cash Flow Statements” to be helpful and that it provides you valuable information.

VAMBOA invites you to become a member.  There are not any dues or fees.  VAMBOA is the “go to” online venue for Veteran and Military Business Owners.   You can also use the VAMBOA seal for your collateral and website.   Below is a link to join and register here: https://vamboa.org/member-registration/

By James Pruitt – Senior Staff Writer

Small businesses certainly need on-hand cash, and lots of it. A new business owner needs at least enough to cover any kinds of emergency costs, or unexpected costs, even on an everyday basis. But what happens when too much of a business’s assets remain as static, inert cash? Money should make money if not working further in other ways towards the business’s goals.

Small businesses can in fact have too much cash on hand. That cash should work for the business rather than lay stagnant in bank accounts. However, the art of cash flow management is very challenging and eludes many business owners.

The concept of return on assets can help a determination of whether standing cash does or does not work for the business. Return on assets simply asks the question of whether a business’s money or resources could better work somewhere else?   If the answer is negative, perhaps the owner should consider a diversification of the company’s portfolio. Business owners should consider and make such a determination once or twice a year.

What alternatives might diversify a company’s portfolio? Perhaps the redeployment of existing monies could better serve the company. Few metrics in business have greater importance than return on assets. Assuming a pool of cash stagnates in a forgotten bank account, what alternatives can revitalize that rotting pond? Many alternatives can diversify these assets. Among these are bonds, healthy stocks, and CDs.

Depending on the nature of your company and the legal considerations, the best option may be removal of funds to your personal retirement account or your kids’ college account. Consider whether legal considerations restrict your company from intermingling personal from business funds (such as partnership or incorporation situations). However, such options should be readily available to small business and home businesses.

Frequently recommended is six months of “operating cash” for your business. “Operating cash” generally means cash necessary for basic expenses such as recurring labor, utilities, rent, and recurring purchases. Assuming such cash in the coffers, owners may benefit in three ways.

First, standing operating cash backs up any outside negotiations. Business decisions should start from a position of strength. The toxic scent of desperation poisons business deals. Vendors, partners, and suppliers often smell this scent before the owners themselves. Owners should always maintain some wiggle room for negotiation. The best deals do not happen when the owner needs something tomorrow. Having six months of cash flow on-hand relieves the urgency of this type of tension.  Decisions under excessive stress rarely provide the absolute best outcomes.

Second, the past ten or fifteen years warns of the inevitable ebb and flow of the economy. Always assume dry spots. Six months of on-hand cash may guide your business through those straits. Just as individuals should keep personal emergency funds, businesses should keep that six months of operating cash for economic emergencies. Small businesses especially will not regret it.   The current pandemic has changed all of the dynamics and rules.

Third, consider the development of your company. Much can happen in six months. Your business plan may change, you may get new ideas, you may discover new opportunities. A six-month supply may allow owners to redirect their business ventures, and see new ideas come to fruition.

On-hand cash flow is important. Businesses should always have emergency funds. However, stagnant cash does small businesses no favors. Options are limitless for secure management of unused cash. Whether through investments, lucrative deals, or new ideas, business owners should stream those monies out of that stagnant pond, assuming the money does not work for the company in situ. As always, balance is the key.

VAMBOA, the Veterans and Military Business Owners Association, hopes that you have enjoyed these articles addressing various aspects of Cash Flow.   We work very hard to bring our audience timely and valuable information.

VAMBOA does not charge members any dues or fees.  If you are not yet a member of VAMBOA, please join here:   https://vamboa.org/member-registration/

Members may use our seal on their web sites and collateral and will receive special discounts and other important information.

By Debbie Gregory.

In Part 1 of this mini-series, we went over some of the basic information you need to know in order to find the possible small business grants. Once you have found the right grant that you may be eligible for, what do you do next?

How to Apply for a Small Business Grant

The application process for most grants can be rather lengthy and challenging. Each grant can take weeks to complete and submit. Be sure that you are only applying for grants that you have the best qualifications for and have a good chance of winning approvals.

Thankfully the SBA, or your local Small Business Development Center (SBDC), is always there to help. They offer free resources for researching grants, understanding their requirements, and even training courses to help you get on the right track.

Here are the three basic steps for applying for any grant:

1.) Research Each Grant Very Carefully:

You absolutely must understand the eligibility criteria for you and your business. The grant process will ask about both, in depth. You will need to know the deadlines for the grant(s) that you select as well as be able to meet them or your application will be automatically rejected. Grant agencies rarely give extensions or make exceptions to deadlines.

2.) Compile and Submit All of the Required Documents:

The grant making agency or organization will provide you a detailed list of all the information and documents that are required from you to apply for their grant.  Incomplete or incorrect applications can delay your application or cause an outright denial. This list usually includes items such as:

• Current financial statements
• A business plan
• A grant proposal
• More

3.) Make Sure That You Understand Certification or Verification Requirements:

Always be sure that you meet all requirements before applying for any grant so that you don’t waste your time, the time of others and valuable resources.

Do I Have to Pay Back A Small Business Grant?

Most people avoid searching for and applying for grants because they fear they will have to pay them back which may put them into a financial bind. However, unlike a loan, you are not required to pay back a grant. This is the main reason that grants have much more challenging eligibility requirements than loans do.

Other Things to Keep in Mind:

Always hire a professional if possible, to assist you with the process.  Knowing and understanding how to write a strong grant proposal is a specialized skill.  There are professionals who do this all the time.  It might make good business sense for you to consider investing in the cost of hiring a professional to assist you.

Please do be on the lookout for scammers. Make sure that you are utilizing legitimate vendors to search any grants that are behind a pay wall. Legitimate grants will also never require you to put up matching funds, such as cash or financing.

Make sure you will not need to register with any required government databases, such as System for Award Management (SAM). If you are required to do so, please make sure to do your research and complete the correct process.

Though applying for a grant may be challenging and difficult, they present an excellent choice for your business to obtain funds.

VAMBOA, the Veterans and Military Business Owners Association, hopes that you have enjoyed these articles addressing Small Business Grants   We work very hard to bring our audience timely and valuable information.

VAMBOA does not charge members any dues or fees.  If you are not yet a member of VAMBOA, please join here:   https://vamboa.org/member-registration/

Members may use our seal on their web sites and collateral and will receive special discounts and other important information.

By Debbie Gregory.

If you are looking to start a business, the odds are good that you will be looking for financing to get it off the ground. You can always apply for a loan or you can use your own personal credit cards or savings to fund your new business.  However, if you do not want to deal with debt, or you need to conserve your cash for another reason, you may want to consider applying for a grant.

There are quite a few small business grants out there offered by the government or nonprofit programs that you won’t be required to repay in the future. If your small business meets the criteria, you can apply and may receive the funding that you need.

Most grants are for specific business purposes or roles, so it is very important to understand the specifics of any small business grant you apply for. Do your research and become intimately involved with understanding the process and rules.

Is my business eligible for a small business grant?

Eligibility depends on quite a few factors, such as:

• Your business owner category
• The type of business you plan to open
• The type of grant you are looking to apply for
• The granting agency itself
• The location of your business
• More

For example, grants are set aside specifically for those with certain statuses, such as:

• A US veteran
• A woman
• A minority business owner
• Green businesses
• A Native American
• A person who identifies as LGBT
• Small nonprofit organizations
• More

If you or your business falls into a special category, it may increase your grant eligibility.

What Government grants are available for small businesses?

There are several places you can check for small business grants awarded by the federal government. The most well-known is the Small Business Administration (SBA), which is typically known for small business loans. Though they also offer grants directly and in partnership with other organizations. Visit the SBA’s website for more information and eligibility requirements.

Other federal government agencies and state and local agencies to check include:

• gov : This site gives a good overview of grants available, how to qualify and how to apply.
• SBIR and STTR grants : “Small Business Innovation Research” (SBIR) and “Small Business Technology Transfer” (STTR) grants are for entrepreneurs focused on developing technology for consumer use.
• National Institutes of Health (NIH) grants: They provide grants to small businesses in biomedical technology research and development fields.
• USDA Rural Development Business Grants (RDBG) grants: They offer technical assistance grants to small rural businesses and cooperatives.

What other grants are available?

There are plenty of non-government grants out there for small business owners for startup or certain types of business development. Here are a few to consider:

• org: This site shares a wealth of accredited grant fund resources.
• Visa Everywhere Initiative : This is an annual contest sponsored by Visa which awards up to 150,000 in prizes and global recognition.
• FedEx Small Business Grant Contest : This contest is open to for-profit businesses that have been in business at least 6-months and have fewer than 99 employees. The award is up to $25,000 that the business can use for print and other business services.
• Patagonia Corporate Grant Program : This program is for innovative nonprofit organizations, in specific geographic locations, who work to preserve the environment. The program awards between $20,000 and $30,000.

We invite you to stay tuned for Part 2 of this mini-series on Small Business Grants.  In Part 2, we will review the application process and more.

VAMBOA, the Veterans and Military Business Owners Association, hopes that you have enjoyed these articles addressing Small Business Grants   We work very hard to bring our audience timely and valuable information.

VAMBOA does not charge members any dues or fees.  If you are not yet a member of VAMBOA, please join here:   https://vamboa.org/member-registration/

Members may use our seal on their web sites and collateral and will receive special discounts and other important information.

By Debbie Gregory.

Cash flows in and flows out. Cash flow is important and is a key indicator of a company’s health. As discussed in the previous article, cash flow is different from profitability. Cash flow measures the liquid assets on hand, while profitability relates more to the long-term expansion of the company.

Different types of income and expenses break into different categories of cash flow. We can break these down into (1) “operating cash flow,” (2) “investing cash flow,” (3) “financing cash flow,” and (4) “other cash flow.”

Differentiating types of cash flow helps businesses create a cash flow statement. These statements are important both for internal accounting and tax purposes. Each type of cash flow may require its own equation for records maintenance. These records are important for any company’s operations procedures, regardless of the company’s size.

• Operating Cash Flow

“Operating cash flow” comes from a variety of sources. On the incoming side of the equation, “operating cash flow” might include the direct cash revenue from goods or services is one such source. Outgoing cash flow might be employees’ wages, purchase of supplies or equipment, utility bills, overhead, or payments on loans. Other types of operating cash flow, besides direct revenue, may include interest on loans and payments from lawsuits. The most common formula for “operating cash flow” is the following: Net Income + non-cash expenses + changes in working capital.

• Investing Cash Flow

“Investing cash flow” may or may not be relevant depending on the size or operations of the business. Such cash flow may be incoming or outgoing.  Examples may include business acquisitions, insurance settlements, or loans originating from the business or business owner. Generally, the equation from “investing cash flow” is earnings from any investments minus any liabilities, such as loan payments or insurance liabilities.

• Financing Cash Flow

“Financing cash flow” moves between owners, investors, and creditors. The owners themselves could move cash into the company from their own savings or other income sources. Aside from owners, investors or creditors may contribute to the financing of the company. Investors, for their part, could overlap with creditors, who could issue loans or other financial arrangements.

In consideration of the interests of investors and creditors, owners should consider the appropriateness of moving cash out of the company coffers, depending on circumstances. The most common formula for “financing cash flow” is the following:

Financing Activities Cash Flow = CED – (CD + RP). This formula could help a company issue a cash flow statement.

• Other Cash Flow

Other types of cash flow might involve charitable contributions, earnings or costs for company events, or any variety of incentives for employees, assuming use for the company’s business purposes. Calculation methods may defer to the owner’s convenience and operations procedures.

• Cash Flow Statements

The above four categories suggest methods of organization for cash-flow statements, for record-keeping purposes. Companies should issue a cash flow statement at least quarterly. The company’s management may use the above classifications at their discretion.  However, the statements themselves are necessary records for any company’s archives, both for outside requests and internal reference.

We hope that you have enjoyed this article and the prior one on profitability.   We work hard to bring our audience timely and important information.

We do not charge members any dues or fees.  If you are not yet a member of VAMBOA, please join here:   https://vamboa.org/member-registration/

Members may use our seal on their web sites and collateral and will receive special discounts and other important information.