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A cash flow statement is a report that tracks the money coming in and going out of your business over a fixed period of time. Click below to download a cash flow statement template that you can use to create this important report for your business.

Statement of cash flows

What is a cash flow statement?

The primary goal of a Cash Flow (also called a cash flow statement) is to show you how much money your business has made and how it has handled the money it has made over a fixed period of time. Most cash flow statements track your business’ cash and cash equivalents received and spent over a month, quarter, or year. (Tip: Cash equivalents are liquid assets or financial instruments that will mature in three months or less.)

A cash flow statement is similar to a income statement, but the two reports do not cover exactly the same information. While an income statement shows the overall profit or loss of your business over a period of time, a cash flow statement shows whether a business has earned (and properly managed) enough cash to pay its bills and other financial obligations.

To explain it another way, a cash flow statement can help answer the following questions:

  • Does your company have enough cash to cover the payroll?
  • Is there enough money available to cover operating expenses?
  • Can your business afford to pay its loan and financing payments on time?
  • Does your business have sufficient emergency funds for unforeseen expenses?

If preparing your own financial statements makes you confused or overwhelmed, it may be best to work with a professional, at least initially. Nav also offers a free automated cash flow analysis from your professional bank account which can help you.

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Advice on using the cash flow statement template

Many small business owners find the statement of cash flow to be one of the financial state They create. In some ways, your business cash flow statement isn’t that different from balancing your business checking account – recording and calculating money coming in versus money going out. Still, of course, there are some differences.

“A common method of creating a cash flow statement is to start with the income statement and adjust the working capital,” says Jo-Ann Yuen, a chartered accountant with over 20 years of experience with multinational companies and of start-ups and vice president of finance for Nav. “Working capital includes accounts receivable, inventory and accounts payable. If any unfavorable trends are observed in working capital (for example, a large increase in accounts receivable or inventory without a corresponding increase in sales), this may indicate a potential problem that needs to be investigated. Maybe the business is buying too much inventory and tying up valuable money, or maybe the business is not collecting customers in a timely manner.

In addition to operating inputs and outputs, a business owner should also analyze cash flow requirements for investments and financing activities. For example, cash outflows may be required for an expansion opportunity or the repayment of an outstanding loan.

Below are tips that will help you use the cash flow statement template provided above so that you can better manage the money coming in and out of your business accounts.

  1. Study the example of cash flow statement to understand how to create a cash flow statement for your own business.
  2. Download and save a copy of the cash flow template – available in Excel, Google and PDF formats.
  3. Choose the accounting period you want to track (for example, month, quarter, or year).
  4. Enter your company’s financial numbers into the four sections of the cash flow statement template – Opening Cash Balance, Incoming, Outgoing, and Ending Cash Balance. (See below for other definitions of terms you don’t recognize.)
  5. Check the correctness of the number in your “Final Cash Balance” field.
  6. Save the report in your preferred format (Excel, Google Sheets or PDF).
  7. Repeat the process for the next posting period. (Most businesses create a new cash flow statement on a monthly or quarterly basis.)

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Conditions of the cash flow statement

When filling out your cash flow statement, you may come across some unfamiliar terms. The checklist below should help you understand the main sections of a cash flow statement and the type of information you should include in each.

Operating activities

The operating activities included in your statement of cash flows have to do with your day-to-day income and expenses (i.e. net income or loss). In the template provided, you will find two sections for entering operating activities – Incoming and Outgoing.

In the “Cash In” section, you should record your operating cash flow. This includes income from regular business activities, such as:

  • Revenue received from sales of goods and services
  • Accounts Receivable Paid

On the other hand, the “Cash Out” section will include the operating activities that resulted in the cash payment to others in your business. These expenses related to operating activities may include:

  • Inventory purchased
  • Salary and wages paid
  • Insurance premiums paid
  • Taxes paid (less depreciation)
  • Short-term debt paid

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Investment activities

Next, on your cash flow statement model, you will come across income and expenses from your business investing activities. Again, investing activities are divided into “Cash In” and “Cash Out” categories on the model.

Investing activities listed in the “Cash Out” section may include:

  • Investment securities sold (stocks, bonds, etc.)
  • Long-term assets sold (equipment, real estate, etc.)
  • Payments received on loans

Conversely, the “Cash Out” section listing your company’s investment activities would include the reverse:

  • Investment securities purchased
  • Long-term assets purchased (equipment, real estate, etc.)
  • Money your business has lent to others

Fundraising activities

Finally, your cash flow statement should contain information about the money your business borrows from lenders, long-term debt repayments, and cash traded that relates to owner or shareholder equity.

In the “Cash In” section, you can list:

  • Borrowed money
  • Shares or shares issued to raise funds
  • Money collected from investors or owners

The “Cash Out” section of your spreadsheet may include:

  • Principal and interest repaid on long-term debt
  • Redeemed shares
  • Cash dividends paid

Net cash balance

The bottom line on your cash flow statement will be your ending cash balance (also called a net cash balance). This number reflects the total cash that your business had in its possession during the accounting period. A negative cash flow figure means your business spent more money than it earned. A positive number means your business made more money than it spent.

Does Your Business Need Cash Flow Statements?

If your business is publicly traded, the cash flow statements included in the quarterly financial reports required by the United States Securities Commission. Yet even if your business is private, keeping track of your business’ cash management is crucial. According to CBInsights, nearly a third of startups fail because they lack cash.

Some companies find it better to hire an accountant to help prepare the cash flow statement and other financial statements. This choice is certainly of value if you are unfamiliar with financial projections and reports. An accountant would know, for example, that the information you include in your cash flow statement may differ depending on whether you are preparing a direct or indirect cash flow statement.

Whichever way you decide to track your business’s cash flow, make sure you don’t skip this important step. Good financial management of your business’s cash flow (and beyond) is an important key to your business success.

This article was originally written on October 23, 2019 and updated on October 31, 2019.

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