How To Create a Cash Flow Statement for Your Business

How To Create a Cash Flow Statement for Your Business
July 20, 2023 Comments Off on How To Create a Cash Flow Statement for Your Business Business, Startup Sarthi Lam

Creating a cash flow statement for your business involves tracking and reporting the inflows and outflows of cash over a specific period. It helps you understand how cash moves through your business and provides valuable insights into your financial health. Here’s a step-by-step guide to creating a cash flow statement:

1. Gather Financial Data: Collect all relevant financial data for the period you want to analyze. This includes cash transactions, bank statements, sales records, purchase receipts, loan documents, and any other cash-related information.

2. Choose a Reporting Period: Select the period for which you want to create the cash flow statement. Typically, businesses generate cash flow statements on a monthly, quarterly, or annual basis.

3. Identify Cash Flow Categories: Categorize your cash flows into three main categories: a. Operating Activities: Includes cash flows from day-to-day business operations, such as sales, expenses, and inventory. b. Investing Activities: Involves cash flows related to buying or selling assets, such as equipment, property, or investments. c. Financing Activities: Encompasses cash flows from sources like loans, equity investments, and dividends.

4. Calculate Cash Flows from Operating Activities: To determine cash flows from operating activities, follow these steps: a. Start with your net income (profit or loss) for the chosen period. b. Add back any non-cash expenses (e.g., depreciation, amortization). c. Adjust for changes in working capital, such as accounts receivable, accounts payable, and inventory. d. Consider other operating activities like interest received or paid and taxes paid.

5. Calculate Cash Flows from Investing Activities: To compute cash flows from investing activities, consider cash transactions related to buying or selling assets. Examples include: a. Cash received from selling assets. b. Cash paid for the purchase of new assets.

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6. Calculate Cash Flows from Financing Activities: For cash flows from financing activities, consider transactions related to raising capital or repaying debt, such as: a. Cash received from loans or issuing stock. b. Cash paid for dividends or debt repayments.

7. Summarize the Cash Flow Statement: Present the information in a standardized cash flow statement format, categorizing each cash flow under operating, investing, or financing activities. Here’s a simplified example:

Operating ActivitiesInvesting ActivitiesFinancing ActivitiesTotal Cash Flow
Cash Inflows
Cash Outflows
Net Cash Flow

8. Analyze the Cash Flow Statement: Review the cash flow statement to understand how cash is generated and used in your business. Positive cash flow indicates more cash inflows than outflows, while negative cash flow indicates the opposite. Analyze trends, identify potential cash flow issues, and make informed decisions based on the insights gained.

Creating a cash flow statement helps you maintain financial stability, plan for the future, and make strategic business decisions. If you’re unsure about handling financial statements, consider consulting with a professional accountant or finance expert.

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About The Author
Sarthi Lam Sarthi Lam is an author of LoogleBiz for both adults and teens, including The Kill Club and her upcoming YA debut, She’s Too Pretty to Burn. She was born in Tamilnadu, India and has lived most of her life in Los Angeles.