*transcript formatted from original video (watch video for full version)

The number one thing you can do to improve cashflow: Understand how to read your income statement and improve your bottom line net income.

You might be thinking, thank you, Captain Obvious, I need to improve my net income to improve cashflow.  Though there are a lot of other things from the balance sheet that can impact your cashflow,  it has to start with a sufficient net income to support the ongoing cash needs of your business.

*So let’s take a look at and make sure you understand how to read your income statement. This is the sample data file for QuickBooks online.  And let’s just take a look at the components of the profit and loss statement. 

income statement

In the top section is  all the  revenue from the different income streams you  have. The next section is your costs of goods sold- costs that are directly allocated to the products and services that you sell.

 

These costs are incurred, whether it’s product or direct labor.   

Once you’ve subtracted your cost of sales and your cost of goods sold from your net income, that provides your gross profit. From your gross profit, you need to cover all your operating overhead expenses. 


Once you’ve covered your overhead expenses, that should give your net operating income. There may be some other income and expenses. 


If you’d like more information on how to understand your income statement check out our Ultimate Guide to Cashflow for the full details.