How to Create a Business Cash Flow Statement

by High Yield Savings Accounts

Cash flow statements are extremely useful for a business to get a complete picture of all money coming into the business and all money going out of your business during a specific period of time.  When organizing your small business finances, you should create a cash flow statement annually at a minimum, but businesses of all sizes benefit from creating cash flow statements on a monthly or quarterly basis.

A common misunderstanding of cash flow statements is that it will show the same number as the “net income” from the Profit and Loss Statement.  This is not the case, because your net income on the P&L will show non-cash information, like depreciation and physical assets, and because net income is calculated from net sales – not actual cash payments.

How to Create a Business Cash Flow Statement

What Cash Flow Statements Are Used For

Business owners can rely on cash flow statements as the guideline for creating their budget.  It will show you where your income has been generated and where the money went.

If applying for a business loan, a lender will ask for a cash flow statement to analyze your ability to repay the loan.

If your business is publicly traded, you are required to create cash flow statements and follow the Generally Accepted Accounting Principles (GAAP).

How to Create Your Cash Flow Statement

There are three sections in a cash flow statement which can show the net change of cash coming in and out of your business during a specific period of time:

  • Operating Activities
  • Investing Activities
  • Financing Activities

Find your beginning cash balance – how much money do you have in the bank and in hand at the start of the month or period you’re creating a cash flow statement for?  For example, if your business has $1400 in the bank and $600 in petty cash, you’re starting cash balance is $2,000.

How much money came into the business –  include all income to the business from sales and  other business activities; including payment for old debts.  If you brought in $5,000 in sales and $350 from old debts people owed to you, your total cash in for the period is $5,350.

How much money went out of your business – include all expenses and purchases.  You’ll probably have salaries, rent, utilities, supplies, loans, taxes, etc.  If you spent $3000 in salaries, $500 for rent, and $220 for office supplies your total cash out would be $3720.

Calculate the cash flow – subtract the total amount of your cash out from your total amount of cash into the business for the period you are analyzing.  In our example, you would subtract $3,720 from $5,350 for a net change of $1,630.  If you have a negative number from this calculation, your business is operating at a negative cash flow and is in trouble.

Find your ending cash balance – add the net change you just found when calculating the cash flow to the beginning cash balance to get your ending cash balance.  In this example, it would be $3,630.  This becomes your beginning cash balance for the next period.


.