What is a Cash Flow Statement? Examples and Templates (2024)

Cash is the lifeblood of any business, especially start-ups and small businesses.

Limited or unstable cash flow is one of the most significant challenges facing small businesses. Cash flow management It is a prerequisite for success.

To understand your business’ cash flow, you need a cash flow statement. If you’re struggling to create a financial statement, don’t worry. This guide will walk you through the details, with a free cash flow statement template that you can download and use.

What is a cash flow statement?

A cash flow statement is a financial statement that summarizes the inflows and outflows of cash transactions during a particular period of business operations.

The purpose of the cash flow statement is to record the amount of cash (or cash equivalents) flowing in and out of a company. Businesses use the cash flow statement to get a detailed picture of their cash balances, which are vital to the company’s financial health.

Many small and medium-sized enterprises Profit and LossIn the process, the company’s cash flow is ignored. Having a clear overview of your cash flow will help you understand where your money comes from and how it is being spent.

A template for small business makes it easy to record your cash movements. Cash flow statement templates usually come in spreadsheet format and are preloaded with the necessary formulas for easy calculations.

Why is cash flow important?

Cash flow It’s like having enough money in your bank account to pay your bills. If you don’t have enough cash coming in, you can’t pay your employees, suppliers, rent, etc. Just like you would create a personal budget, businesses use a cash flow statement to help them plan.

If you have good cash flow, banks and investors are more likely to lend you or invest in you, just like having a good credit score makes it easier to get a loan.

Cash Flow and Other Financial Statements

Financial Statements A cash flow statement is a report that summarizes a company’s financial performance. Balance sheet and Profit and loss statement.

An income statement measures revenue, expenses, and profitability while a company’s balance sheet shows assets, liabilities, and shareholder’s equity, while a cash flow statement records changes in cash.

Although these three financial statements are different, they are interrelated: Net income on the income statement is reflected in retained earnings on the balance sheet and is the starting point for the statement of cash flows.

Types of Cash Flow

The cash flow statement shows three main types of cash flows:

Cash flow from operating activities

The operating activities section of the cash flow statement includes core business activities. This section measures the cash flows from the company’s provision of products or services. Examples of operating cash flows include selling goods and services, paying salaries, paying rent, and paying income taxes.

Cash flows from investing activities

Investing activities include cash flows from the acquisition and disposition of long-term assets and other investments not included in cash equivalents. These represent long-term investments in the company’s growth. For example, the purchase or sale of physical assets, such as real estate or vehicles, or non-physical assets, such as patents.

Cash flow from financing activities

Cash flows related to financing activities typically represent cash from investors and banks, stock issuances and repurchases, and dividend payments. Business LoansAll of these transactions, such as paying interest to repay debt, distributing dividends, etc., are classified as financing activities.

How to Calculate Cash Flow

There are two methods for calculating cash flows: the direct method and the indirect method.

Whichever method you choose, only the operating activities section of your cash flow statement is affected. The other two sections (cash provided by investing activities and cash provided by financing activities) remain unchanged.

Direct Method

The direct method adds up all cash inflows and outflows from operating activities. Cash basis accounting A model in which revenue is recognized when cash is received and expenses are recognized when cash is paid. Calculating cash flows using the direct method is easy, but Track all your cash transactionsSo it may take more effort.

Strong Points:

• Transparent
• Easy to understand
• Use real-time numbers

Cons:

• It takes more time and effort
• This could be problematic for companies using accrual accounting (see below).
• Companies using this method still need to reconcile net income with cash flows from operations.

Indirect methods

The indirect method uses net income as a basis and makes adjustments for non-cash expenses, such as depreciation and amortization.

This method is Accrual accountingWith the indirect method, revenue is recorded when it is earned, not when it is received. When you use the indirect method, you start with net income on your income statement and make adjustments to offset the effects of any accruals incurred during the period.

Strong Points:

• Easy to prepare
• Reconciliation of profit and loss statements with balance sheets is possible
• Disclose non-cash transactions

Cons:

How to Prepare a Cash Flow Statement

Direct Method

1. Start with your cash receipts

Lists cash receipts received from customers. This does not include credit sales, only cash collected from sales or services.

2. Add any interest or dividends received

Add in income received from interest and income earned from dividends during the accounting period.

3. Deduct cash payments to employees and suppliers

List all the cash payments that you have made to your employees, whether they are salaries, contracts, freelance work, etc. This also includes any income tax that you have paid. Here, you also list all the payments that you have made to your suppliers during the accounting period, this also includes any commission or interest that you have paid.

4. Calculate your cash flow

Add the cash you collect during the accounting period and subtract the cash you pay out, which gives you a clear picture of your available cash flow.

Based on that figure, you can see if your cash increased or decreased during that period, which is a key indicator of how healthy your company is financially and how much cash you can generate to pay your bills and invest in the future.

Indirect methods

1. Start with Net Profit

The cash flow statement starts with net income, which, based on the income statement, shows your profit or loss after deducting all expenses, including taxes.

Net income It is calculated by subtracting all operating expenses, interest payments, taxes, and other costs from gross revenues.

It is important because it forms the basis of the cash flow adjustment. Although net income is a measure of profitability, it is not the same as cash flow.

2. Add non-cash expenses

Non-cash expenses are adjustments made to net income to reflect a company’s actual cash balance.

Depreciation and amortization are the most common non-cash expenses. Depreciation is a way of spreading the cost of a tangible asset over its useful life, while amortization is a way of spreading the cost of an intangible asset.

It also includes losses on asset sales, even if they do not result in a cash outflow.

3. Subtract changes in working capital

Working capital is the sum of current assets (cash, inventory, accounts receivable, etc.) and liabilities ( accounts payable and short-term debt), which may fluctuate from period to period.

4. Add other cash items

This step adjusts net income for other cash inflows and outflows not included in working capital, including dividends paid, interest paid, and other cash investments and payments.

5. Calculate your cash flow

The final step is to calculate the total cash flow for the period, which is calculated by adding up the net income, adjusting for non-cash expenses, Working capitaland other cash products.

Cash flow statement template

You don’t have to start from scratch when creating your cash flow statement. Download our free cash flow statement template and start tracking your business’s finances today.

It’s easy to use, has simple instructions, and can be customized to fit your business’ accounting period.

To use this template, follow these three steps:

1. Gather relevant documents

You’ll need receipts and other financial information to fill out the template. invoicebank statements and other documents.

2. Fill out the template

As you enter your numbers, the spreadsheet formulas update automatically. The template also includes beginning balances so you can carry them forward to accurately calculate your cash flow for each period.

3. Check your cash flow statement

You’ve got your cash flow statement. But what does it mean? It’s time to do a cash flow analysis.

Cash flow analysis Read the cash flow statement to better understand your business’s cash flow management and, in some cases, Cash flow forecasting (Predicting future cash flows).

How to read a cash flow statement

The purpose of the cash flow statement is to show the amount of cash generated and spent during a particular period, helping a company analyze its liquidity and long-term solvency.

When all cash transactions are tallied, they give you a cash flow that is either positive or negative.

Positive cash flow

This means that more money is coming in than going out. This creates an opportunity to reinvest excess cash into growing the business. However, a positive cash flow does not necessarily mean that the business is profitable. A company can have a negative cash flow. Net incomeHowever, borrowing activities resulted in positive cash flow.

Negative cash flow

This indicates that you spent more cash than you earned in a particular period.

Negative cash flow isn’t necessarily a bad thing, especially if it’s the result of investing in future growth.

For example, venture-funded startups often have negative cash flows, and therefore negative burn rates, as they strive to grow market share, acquire customers, and increase long-term profits. However, negative cash flows for multiple accounting periods should be considered a warning sign about a company’s financial health.