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Project Management and Invoicing Software - Overview of The Financial Statements

Jan 30, 2017 | By Seth David | 0 Comments

Topics: Project Management

Does your project management and invoicing software allow you to run financial statements?

In my previous post on How to Manage Projects Like a Boss with BillQuick Online I mentioned that it makes sense to have your project management and invoicing software also manage your projects. The key to why this works, is that these things go hand in hand. Our "projects" are integral to what we do as serviced based businesses. We track our time, and our expenses, and we break our time down into the activities that need to be completed, in order to complete the project. Along the way we track our time, and expenses, and then we want to bill our clients for all of it.

Doesn't it make sense now, that if we're going to track everything about our projects in one place, and our projects carry much of what goes into the accounting, that we should run accounting reports from our project management and invoicing software?

BillQuick and BillQuick Online offer plenty of accounting reports, and I want to review the three main financial reports with you.

  • Balance Sheet
  • Income Statement
  • Statement of Cash Flows

The Balance Sheet is a snap shot. It's a moment in time look at what your company looks like. The Balance Sheet also answers the most important question. Not how much money you made, but how much is your company worth.

The Income Statement (aka Profit and Loss or P&L) is a moving picture. It measures your success over a range of time. How much money did you make last year, from Jan 1 - Dec 31? Most of us are very familiar with this one.

The Statement of Cash Flows is perhaps the least well known, and it may be the most important in terms of understanding how "financially healthy" your company is. For one thing the Statement of Cash Flows has a way of removing the BS from the other statements. There are things I can do on the balance sheet to inflate my assets, and there are things I can do on the Income Statement, to inflate my income.

The Statement of Cash Flows reconciles your accrual basis net income to cash. So anything I do, to inflate assets on the balance sheet, if I haven't actually paid for it, the statement of cash flows removes it. The same is true of any income on the books, if the customer hasn't made a payment yet.

In fact, I could post an invoice for $500,000. This will inflate both my accrual basis income, and it will inflate my assets (accounts receivable) at the same time.

The statement of cash flows will subtract this increase in accounts receivable from net income to arrive at cash.

The statement of cash flows is broken down into three sections:

  • Cash Flows from Operations
  • Cash flows from Investing Activities
  • Cash flows from financing activities.

Ultimately your cash flows need to be coming from Operations. If they aren't, that could be a sign of a "going concern" issue.

Without looking at all three of these financial statements, you are missing part of the picture. Most of you are looking at your Profit and Loss. Fewer of you are looking at the Balance Sheet. I would guess that very few of you are looking at the Statement of Cash Flows. Maybe it's time to start? Your project management and invoicing software should give you this information, at your fingertips, so that you can properly analyze the financial aspect of your business right where the action is - inside your projects!

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