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 Often considered the third component of a company’s cash flow statement, financing cash flows are an important component of understanding the health of the company’s financial situation. It is an important part of the triumvirate. The strict definition of financing cash flows is cash flow that is received, or expended as a function of financial activities like interest and dividends. The term can apply to small businesses just as it can to large stock based companies and should be understood fully by anyone associated or involved with a business. Expert Phil Thow suggests every business owner, or planner should have a good comprehensive knowledge of how financing cash flow works.
Financing cash flows refers to money the company took in or paid out in order to finance its activities both operationally and administratively. It is what was paid out through financing in order to obtain the factors of production as well as, to pay the costs of everyday operation. Included in financing cash flows are interest payments to financial institutions, and in the case of a stock company, payments to stock holders in the form of dividends. Phil Thow urges all business managers to understand these important aspects of financing cash flows.
Let’s talk about stock companies for a minute. With stock companies, financing cash flows also refers to cash flow obtained by the sale of new stock as well as, any money it laid out to buy back stock from any stock float that may be out in the public domain. Just like a small business, financing cash flows for stock companies also includes money brought in from borrowing and money paid out to the lenders. Phil Thow says keeping a close eye on how this can affect your business will keep you on the path to ultimate success.
Phil Thow says to remember, financing cash flows are a not a function of a business’s core operations, they are a function of the business’s financial structure and are a means of operational output not the ends. Whether you are in a big or small business understanding and controlling financing cash flows is a major facet of obtaining and maintaining successful business practices. Cash flow overall is everything, and financing cash flows can dictate where a business’s future lies. According to Phil Thow, paying attention to financing cash flows will make you a much smarter, intuitive and capable business manager
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