How To Create a Cash-Flow Statement

Cash Flow is the Money Coming In and Going Out of Your Business.

Knowing how to create a cash-flow statement is essential to run your business effectively. One big challenge many businesses face is keeping positive cash flow. A study by U.S. Bank found that 82 percent of businesses fail due to poor cash management.

How to Create a Cash-Flow Statement – 3 Sections to Include

Cash-flow statements are usually broken down into three sections: operating activities, investing activities and financing activities.

1. Operating Activities

Operating activities are the cash-flow numbers associated with the production, sale and delivery of your products.

2. Investing Activities

This section includes the purchase and sale of long-term assets such as property or equipment.

3. Financing Activities

This section represents the equity of the firm. This is the money owned by outside entities such as banks and shareholders. It also includes the payments to the owners of the company, also known as dividends. If the company made any purchases or sales of its own stock, this money should be included in this section.

How to Create a Cash-Flow Statement – Be Aware Of These 5 Numbers

Although cash-flow statements are broken into three specific parts, there are five critical numbers that you should be aware of when creating a cash-flow statement.

1. Beginning Cash Balance

This number includes the capital you have available at the beginning of the month – including the money in your bank account and any cash you have dedicated to your business.

Example: If you have $1,000 in your bank checking account and $500 in cash, your beginning cash balance is $1,500

2. Cash In

Cash in includes all of the activities that bring cash into your business – your receivables. This could include money from sales and collection on old debts.

Example: If you earned $2,000 in cash from sales and $300 from people or companies who paid their old debts, your total “cash in” is $2,300.

3. Cash Out

This includes all of the money that goes out of your business such as your overhead expenses (rent, payroll, business supplies, loans, taxes, etc.).

Example: If you paid $500 for rent, $1,000 for salaries and $200 for supplies, your “cash out” total is $1,700

4. Net Change

The formula for net change is: (cash in) – (cash out) = net change. It’s important to keep this number positive to maintain your business.

Example: (from numbers above) $2,300-$1,700=$600

5. Ending Cash Balance

The formula for ending cash balance is: (net change) + (beginning cash balance) = ending cash balance. The ending cash balance of this month will be the beginning cash balance of next month.

Example: (from numbers above) $600+$1,500=$2,100

Benefits of Knowing How to Create a Cash-Flow Statement

Once you know how to create a cash-flow statement and do it on a monthly basis, it tells you the net increase (or decrease) of cash your business has from month to month. A positive cash flow allows your business to keep growing and remain successful.

Remember, a cash-flow statement doesn’t detail your income, but gives you a quick glance at how much cash your business has on hand. If your business is consistently coming out with a negative ending cash balance, invoice factoring can help improve your cash flow.