As a business owner, you know cash on hand allows you to invest in new equipment, pay expenses and even negotiate more favorable terms. But operating a successful business is more than just having cash on hand. Organized management of cash flow allows companies to make their operations more efficient and profitable.

According to Jerry Noonan, CPA and founder of Carrier Net and the Truckwin Connect program, the foundation of understanding and expanding cash flow is the cash flow statement.

“This statement offers a snapshot of business health by tracking the costs and returns for operating, investing and financing activities on a cash basis,” he says. “It will give management better reporting regarding where cash is being used for costs.”

1. Operating activities
often use and generate the most cash.

These activities include over-the-road costs for fuel, wages, benefits and variable costs. For transport carriers, the most significant cash flow operating activity is net income after federal and state income taxes.

2. Investment activities
also consume large amounts of cash.

Tractors, trailers, land, buildings and shop equipment are investments. If purchased with credit — thus becoming a long-term debt — they may also be considered financing activities.

3. Financing activities
eat up cash with principal and interest fees.

By spreading payments out over a longer period of time means more cash on hand right now. With more cash available, revenue can grow to exceed interest paid.

To harness the power of financing activities, Jerry recommends negotiating with banks and lenders for 60 or even 72 month periods. If that’s not an option, working with a factoring company like CarrierNet can be.

A quick check

Evaluating cash generated from reoccurring transport operations and monitoring where cash is going are two of the most important things you can do for your business. Managing freight pricing and operating costs to increase cash flow is the main goal of this evaluation. It provides a simple cash “quick check” and tells management and owners whether cash flows are increasing or decreasing monthly and annually.

“Carriers can make a decision on what segments of their costs are being over or under-utilized based on the appropriate ratios,” Jerry adds. “Fifteen percent of current assets should be in cash for a healthy transportation company. From a growth standpoint, the cash flow statement will provide information to investors and banks to help determine further financing.”

About the Author: Jerry Noonan
Jerry Noonan
CPA and Founder