What is a Cash Flow Statement?

How do you determine if you’re running a successful business? Do you track the number of customers you have? Do you pay attention to reviews? Do you use an analytics tool to track your market share? Do you monitor your sales? Do you look at your bank account? Do you check your P&L Statement?

All of these methods can help you see how your business is performing, but they’re only as good as the hard data that comes from documents like a cash flow statement to support them.

The Statement of cash flows or cash flow statement is my absolute favorite statement. Continue reading to learn why.

Here’s a breakdown of the cash flow statement, and why it’s so important for businesses!

Understanding a cash flow statement

A cash flow statement is an accounting document that explains where the money in your business came from and where it went.  Every time you pay a bill, receive an invoice, or pay your employees, you’re moving cash around. That statement summarizes all of the actions you take with your cash.

If you have investors, they’ll likely want a cash flow statement to see how well your business manages its debt and funds its expenses. If you are applying for a loan, the bank will want to see a cash flow statement to assess whether you are able to pay them back. If you bootstrap or work for yourself and have a cash flow statement, it can help you assess your strengths and weaknesses in managing expenses and debt.

Is a cash flow statement required?

If you own or operate a business of any sort, a cash flow statement highly recommended. Even if you are a one man or one woman operation, it can be extremely helpful.

There’s no minimum revenue level needed for a cash flow statement.  In most cases, if you have expenditures or debt of any sort (a business credit card counts), it’s advantageous to make use of a cash flow statement.

Why is a cash flow statement important? 

It enables businesses to better manage their cash flow.

Cash is king.

Without enough cash in your business, regardless of your revenues, your incoming orders, number of clients, likes on Instagram, you go out of business. This is one of the main challenges of growing businesses, managing cash.

The cash flow statement provides information that the other financial statements do not. Often business owners lean on their P&L or profit and loss statement, which shows profit. Profit is great. Revenue and profit are absolutely important to the health and success of a business. However, the P&L statement does not capture debt payments (credit card and loans), owners distributions, money owed to the business (receivables), or money the business owes (payables). All these things affect available cash. Failing to keep an eye on available cash can often lead to a business running out of cash.

Without a cash flow statement to help you make sense of it all, it will be next to impossible for you to manage your cash flow well.

How to get started with a cash flow statement

Figuring out how to get started with a cash flow statement, doesn’t have to be difficult. Whether you have been in business for some time, or are just starting out and want to make sure you have your business finances in order, I can help.

I’ve spent years advising businesses of all types on ways to be more productive, more profitable, and more intentional with their processes. A cash flow statement is very important, and only a small part of a well-thought-out and executed financial strategy for your business.

 Contact me today t0 schedule a Discover & Strategize Session!