Cash Flow Statement for Small Business
A cash flow statement is an essential report for any small business. It provides a picture of how cash comes in and out of business, giving owners more insight into their cash flow to make more informed decisions.
With a cash flow statement, small businesses can track cash inflows from sales and other sources and cash outflows for payments on expenses or loans. Additionally, cash flows statements help companies compare current cash positions with those of previous quarters to determine if progress is being made.
Cash flow statements give small business owners valuable data that reveals why their cash resources increase or decrease over time. You are taking a risk if you are a small business owner and do not have an accurate cash flow statement. This could cause problems with having enough cash to run your business properly.
In this article, we look at what a cash flow statement is and also have a free template download.
Cash Flow Definition
Cash flow is defined as the total amount of cash and cash equivalents coming into and out of a business. It is also known as a statement of cash flows.
3 Financial Reports
A cash flow statement is one of the 3 financial statements that are important for a small business. The other two reports are the balance sheet and income statement (profit and loss).
Balance Sheet
A balance sheet is an essential financial statement for any business as it gives a snapshot of the company’s finances. It shows two sides of a business: assets (what the company owns) and liabilities (what the company owes).
Assets minus liabilities equal total equity. This balance sheet equation helps determine whether a business is liquid, solvent, or profitable. An up-to-date balance sheet provides excellent insight and information when decision-making for any business.
Assets represent the company’s items, such as cash, equipment, property and inventory.
Liabilities are what the company owes, like accounts payable or loans.
Equity is an owner’s interest in a company and is calculated by taking total assets minus total liabilities.
Analysing a balance sheet allows you to evaluate how much debt a business has taken on and its ability to pay bills when due. Even though balance sheets may look complicated at first glance, understanding them will help you better understand your business finances.
Income Statement
An income statement shows the business’ revenue and expenses over a period of time, typically a month or year. It shows how much money was earned compared to how much was spent. This helps you track your profits, losses, and other cost-related issues that could impact the success of your business.
Why is a Cash Flow Statement Important?
There are several reasons why a business might create a cash flow statement, including:
- Monitoring cash flow to ensure that the business has enough money on hand for necessary expenses
- Tracking changes in cash flow over time to assess potential areas of improvement
- Understanding the financial impact of any large investments or purchases for business improvement
- Identify any potential problems or discrepancies with payments or receipts
- Pinpointing any shortfalls in debt collections
- Examining cash flow trends to plan for future purchases or investments
- Comparing cash flow information to other businesses and metrics to gain insight into their performance
By thoroughly understanding your cash flows, you can make the best decisions for your business and ensure that it remains profitable.
How is Cash Flow Calculated
There are 3 sections on the cash flow statement, operating activities, investing activities and financing activities. To calculate cash flow, you need to include all the cash inflows and cash outflows that occur within your business. This includes sales, investments, profits, expenses, and more.
When these amounts are totalled up and added or subtracted from each other, the total number will be your net cash flow.
Operating Cash Flows
Operating activities involve the cash inflow and cash outflow from the company’s everyday operations and management. Operating activities include selling goods and services to customers, making payments to vendors for stock and materials, general running expenses and depreciation.
Investment Activities
Investment activities involve buying and selling long-term investments such as buildings, land, and equipment long-term investments. These transactions usually occur over a longer period of time than operations.
Financing Activities
Financing activities involve all changes to the business’s capital structure, such as taking out loans, issuing new shares, payment of dividends and repaying debts.
By understanding these 3 types of cash flow activities and calculating your business’s net cash flow, you can better understand your company’s financial health. This will help you make sound decisions, plan for the future and track your progress over time.
Information Section
As a final section to the cash flow statement, you might want to add an information section. In this section, add any notes that are beneficial to readers, business owners or investors.
Negative Cash Flow
A negative cash balance can be alarming to see on a cash flow statement. It essentially means that the company spent more money than it took in during the period of time that the statement covers. Fortunately, negative cash usually doesn’t mean anything negative about the company’s financial status; instead, it simply reflects short-term transactions that could be quickly reversed or corrected.
Companies learn to manage negative cash, such as when sales don’t occur at the same time invoices are due and need to be paid. Taking steps like borrowing funds temporarily or making arrangements with creditors can help quickly resolve negative cash situations and get things back on track.
Positive Cash Flow
Positive cash flow, however, is a great sign and means that your business has enough money to cover its expenses. Positive cash flow indicates enough liquidity to pay for assets without having to borrow or liquidate investments. This can help businesses stay afloat when times are tough and give them the resources needed to expand their operations.
Having a positive cash flow can also help you attract investors, as they will be able to see that the company has a healthy financial situation and stable operations. It can also provide peace of mind for current owners or shareholders who have put money into the business and want to make sure it’s growing in a sustainable manner.
Cash Flow Statement v Income Statement
Cash flow statements differ from income statements as they show the actual cash coming in and going out of the company during a given period.
An income statement shows the company’s profitability over a certain period of time by calculating net income or loss based on revenue earned minus expenses.
An example of the difference between cash flow and an income statement is a company that sells 10,000 worth of goods on credit. The income statement would show the total amount as revenue, but no money will be received until the customer pays their bill later.
How to Create a Cash Flow Statement
Creating a cash flow statement is simple and can be done with your existing bookkeeping records. Start by gathering basic financial documents such as bank statements, invoices and receipts. With these documents, you can identify the sources of income coming in, as well as any expenses that are paid out.
Once you’ve identified your income and expenses, you can compute the cash inflow and outflow for each of the three categories. From there, subtract any outflows from your inflows to determine your net cash flow position.
Cash Flow Statements in Accounting Software
Using accounting software such as Xero is an easy and efficient way to create a cash flow statement. With Xero, you can easily import bank statements, invoices and receipts into the system and use them to identify sources of income and expenses.
This makes it quick and straightforward to calculate your net cash flow position by subtracting any outflows from inflows. With Xero’s real-time reporting feature, you can view up-to-date information about your business’s financial health anytime. By using this software for your cash flow statement, you can make more informed decisions about how best to manage your finances in the future.
Cash Flow Statement using Excel Spreadsheets
Creating a cash flow statement using Excel spreadsheets is another option for small businesses. Start by inputting the income and expenses you’ve identified from your existing documents into an Excel spreadsheet.
Once your data is organised, use formulas to subtract any outflows from inflows to get your cash flow position. You can also use Excel to create graphical representations of your cash flow, such as charts or graphs, to visualise better how money is coming in and out of the business.
It’s important to review your cash flow statement regularly to ensure that all transactions are accurately reflected in the financial records. If there are any discrepancies, they should be addressed immediately to ensure accurate financial reporting.
Example Cash Flow Statement
Here is an example of a cash flow statement for a small business:
The above cash flow statement shows the following information:
- The operation activities have more cash inflows than cash outflows
- The business has purchased equipment for 750.00 for investing activities
- They are repaying a long-term loan of 1250.00
- The cash position at the end of the period is less than the opening balance; therefore, there is a negative cash flow.
By looking at the cash flow statement on its own, the business is losing money this month, but there are other things to consider. January can be a slow month for many businesses, so was this expected? The wages are high for income, so it is worth reviewing.
You will need to review the other financial statements to see the whole picture of the business.
Cash Flow Statement Template
Downloading our cash flow statement template is an easy and efficient way to manage your small business finances. With this template, you can easily track income and expenses, calculate net cash flows, and view up-to-date information about your financial health.
Our cash flow statement template will help make managing your finances simpler!
Cash Flow Statements Instructions
Follow these simple-to-use instructions:
- Download your free cash flow statement using the link at the end of the page.
- Enter the business name
- Enter the opening month balance
- From the financial statements, calculate the cash flows for each section.
- Check the figure at the end is correct.
- If you add categories to each section, ensure the calculation is correct.
Free Excel Cash Flow Template Download
By downloading our free templates, you agree to our licence agreement, allowing you to use the templates for your own personal or business use only. You may not share, distribute, or resell the templates to anyone else in any way.
Cash Flow Forecast Conclusion
A cash flow statement is one of the 3 financial statements that help any business to understand how much cash the business has available and make informed decisions about how best to manage their money.
By using accounting software like Xero or Excel spreadsheets, businesses can easily create cash flow statements that provide real-time information about income and expenses. With this data in hand, companies will be able to identify sources of revenue, as well as areas where there may be overspending.
A positive cash flow statement allows businesses to attract investors who want assurance that the company is thriving. Regularly reviewing your cash flow statement ensures accurate financial reporting and peace of mind when it comes time to expand operations or seek new investment opportunities.
operating cash flows,
