Page 168 - The UnCaptive Agent

THREE ESSENTIAL FUNCTIONSOF YOUR AGENCY AND HOW TO STAFF THEM 141

your agency is performing compared to those who share
your size, product focus, and geographical location.
While the profit and loss statement will show whether
you are profitable, it is important not to fall into the
trap of thinking that profits equate to cash or to your
ability to take money out of the business. Doing that
will get you into a great deal of trouble.
Important to every business, but especially to
startup businesses, is the management of cash. There is
a statement you can print from your accounting system
called a statement of cash flows (also called Sources
and Uses of Cash). It shows you where cash is coming
from and where it is going. It will also show you how
much positive cash flow you created or negative cash
flow that you used. This is different than profit or loss,
and far more important!
The reason you cannot rely on the profit and loss
statement to tell you how much money is available to
spend (or take out of the business as distributions for
owners) is that the profit and loss statement includes
non-cash items like depreciation and amortization. The
statement of cash flows is strictly about cash. Of all of
the statements for the new business, I find it is the most
important, and the one you most need to understand.
If you’re not expert at reading financial statements,
much less preparing them, it’s worth taking the time to
sit down with an experienced businessperson, or perhaps
your outside accountant, and have them teach you how
to read them accurately and carefully. Ultimately, how
successful you are as a business owner will depend upon
your ability to manage the financial aspects of your
business, which includes understanding these financial
statements.
Some agencies need to pay particular attention to
accounts receivable. If your agency is doing any agency