The responsibility for managing the household expenses should fall into the hands of the party with a better understanding of common sense financial management.
A statement of cash flow starts with the bottom of your profit and loss statement — the line that shows your net income. Several adjustments are made to that number. The details are a little complex but a good accounting program that does a P&L and a balance sheet will also calculate this statement for you.
To help keep your cash flow examples as accurate as possible you must ensure your customers are fully aware of your invoice terms, keep track and be quick to send out polite request for prompt payment and perhaps charge interest on late payments as long as this is included in your basic terms and conditions. When a new customer appears it is a good investment to do a credit check.
Make sure your financial statements are put together correctly – balance sheet balances, cash flow ties in with the balance sheet and the income statement. This is a skill just like fixing your car. If you don’t know how to do it, do bluff – hire someone to build the statements for you. This does not have to be an expensive accountant or consultant. You can probably find a local MBA finance student who can do it for you as long as you provide the appropriate numbers.
Being able to track a declining margin can give you a heads-up that you must adjust your prices or your costs. In the worst cases your gross profit and profit margin disappear altogether. At that point, you’ll be like the fellow who lost money on every sale but figured he could make it up in volume. Don’t do it.
You probably know someone who suddenly found themselves with a negative Net Worth. If they used the equity in their home to get loans for vacations, and the latest electronics gizmos, they put themselves in a precarious situation. With the recent collapse in housing prices, their home equity no longer offsets the amount of debt they were carrying. The term we use is “under water,” when the amount owed on a property is more than the current market value of the property. Being “under water” is a huge drag on Net worth.
Have you taken a draw from the business? Unless you take it via payroll, it does not show up on the profit and loss statement. It is also a balance sheet item, down toward the bottom: Equity.
Short-term debt includes your car and student loans, as well as your credit cards and other forms of debt. Essentially everything except for your mortgage. You need to list all your outstanding liabilities and their respective minimum/monthly payments. Now add up the minimum/monthly payment amounts and you come up with a figure.