Cash Flow Statement Sample for Small Business: A Step-by-Step Guide

A cash flow statement is a snapshot of your small business's inflows and outflows of cash over a specific period. It helps you understand how your business is generating and using cash.

To create a cash flow statement, start by identifying your business's main sources of cash, such as sales revenue and investments. You can find these values on your income statement and balance sheet.

A typical cash flow statement sample for a small business will include three main sections: operating, investing, and financing activities.

A Cash Flow Statement is a financial document that shows the inflows and outflows of cash and cash equivalents over a specific period of time. It's a summary of a company's liquidity and ability to meet its financial obligations.

The statement typically includes three main sections: Operating Activities, Investing Activities, and Financing Activities. This breakdown helps small business owners understand the sources and uses of cash.

Operating Activities include cash received from customers, cash paid to suppliers, and cash spent on operating expenses. For example, a small business may receive $10,000 in cash from customers in a given month.

Investing Activities involve the purchase or sale of long-term assets, such as property, equipment, or investments. If a small business buys a new piece of equipment for $5,000, this would be recorded as an Investing Activity.

Financing Activities include cash received from loans, cash paid to repay loans, and cash spent on dividends or share repurchases. A small business may borrow $20,000 from a bank to finance its operations, which would be recorded as a Financing Activity.

By analyzing the Cash Flow Statement, small business owners can identify areas where they can improve their cash management and make informed decisions about investments and financing.

There are three main types of cash flow statements: Direct Method, Indirect Method, and Cash Flow Statement for Small Business.

The Direct Method lists all cash inflows and outflows in a single statement, making it easy to track cash flow. This method is useful for businesses with simple cash flow patterns.

The Indirect Method starts with net income and then adjusts for non-cash items, such as depreciation and amortization, to arrive at cash flow. This method is often used for businesses with complex financial transactions.

A Cash Flow Statement for Small Business is a simplified version of the cash flow statement, focusing on key cash inflows and outflows relevant to small business operations.

The indirect method of calculating cash flow is a simpler approach that's often preferred by small businesses. It involves looking at the transactions recorded on your income statement and selectively backtracking to eliminate transactions that don't show the movement of cash.

This method requires less legwork and organization compared to the direct method, which is a big plus for small businesses that need to keep things simple. You won't need to go back and reconcile your statements with the direct method, either.

To calculate cash flow using the indirect method, you'll need to start with your net income from the income statement. Then, you'll need to make adjustments for items like depreciation, accounts receivable, and inventory. For example, if you've recorded a $20,000 increase in accounts receivable on your income statement, you'll need to deduct that amount from your cash on hand because it's not actual cash.

The indirect method can help you see your working capital more clearly, which is essential for making informed business decisions. By reversing certain transactions on your income statement, you can get a more accurate picture of your cash flow.

Cash Flow from Investing Activities is a crucial section of a cash flow statement, covering investments your company has made, such as purchasing equipment or real estate.

It's essential to understand that these investments convert cash into assets of equal value, like a $10,000 mower or a $140,000 retail space.

For small businesses, this section usually doesn't make up the majority of cash flow, but it still needs to be reconciled to affect working capital.

The key to this section is reversing investments by removing cash on hand, as the asset value isn't the same as cash.

In the example, a $5,000 equipment purchase is recorded as a new asset, but it's deducted from cash on hand because it's not currency.

A cash flow statement typically includes three main components: Operating Activities, Investing Activities, and Financing Activities. Operating Activities involve the cash inflow and cash outflow from the company's everyday operations and management, including selling goods and services to customers.

The Operating Activities section can be broken down into several line items, such as net income, depreciation, and changes in accounts receivable and inventory. Net income is the total income, after expenses, for the month, which can be found on the income statement.

Here are some examples of line items that may be included in the Operating Activities section:

These line items help to reconcile the net income reported on the income statement to the actual cash flow from operating activities.

The direct method of calculating cash flow is a route you can take to figure out your company's cash flow. It's approved by generally accepted accounting principles (US GAAP), but it's not typically preferred by small businesses because it takes more legwork and organization than the indirect method.

You'll need to produce and track cash receipts for every cash transaction, which can be a lot of work. Even if you record cash flows in real time, you'll still need to use the indirect method to reconcile your statement of cash flows with your income statement.

The direct method takes longer than the indirect method because you need to track every cash transaction. This can be time-consuming, especially for small businesses.

Operating activities are the backbone of any business's cash flow. They involve the cash inflow and cash outflow from everyday operations and management.

Let's break down what operating activities include. Selling goods and services to customers, making payments to vendors for stock and materials, and general running expenses are all part of operating activities.

Depreciation is also a key component of operating activities. It's recorded as an expense on the income statement, but since no cash actually leaves our hands, we add it back to cash on hand. In our example, depreciation is recorded as a $20,000 expense, but it's listed as income, adding $20,000 back to cash.

Accounts receivable is another important aspect of operating activities. When we charge clients for services, but haven't been paid yet, it's recorded as an increase in accounts receivable. This means we deduct the amount from cash on hand, as it's not yet cold hard cash.

Here are some key items to consider when looking at operating activities:

By understanding operating activities, you can get a clearer picture of your business's cash flow and make informed decisions to manage your finances effectively.

Financing Activities are a crucial component of a Cash Flow Statement. They involve the movement of cash in and out of a company due to financing activities.

Cash can flow in when a company receives a loan or brings on a new investor, as seen in Example 1 where a $7,500 loan is recorded as an increase to cash on hand.

This type of activity can also involve the issuance or repurchase of a company's bonds or stocks, as mentioned in Example 2. Financing activities also include short- and long-term borrowing and repayments.

A key aspect of Financing Activities is that they can be either positive or negative, depending on whether cash is flowing in or out. This can be seen in Example 1 where paying off a loan results in cash leaving the company's bank accounts.

Here are some examples of Financing Activities:

Creating a cash flow statement is a straightforward process that can be done with your existing bookkeeping records. You'll need to gather basic financial documents such as bank statements, invoices, and receipts to identify the sources of income and expenses.

Start by identifying your income and expenses, and then compute the cash inflow and outflow for each of the three categories: operating activities, investing activities, and financing activities. For example, if your business has accounts payable that increased by $5,500, you'll add that back to cash, as it didn't actually impact cash.

To create a cash flow statement, you can use the four rules for converting information from an income statement to a cash flow statement. These rules include adding back depreciation and accounts payable, and subtracting accounts receivable. For instance, if your net income on the income statement is $3,500, it stays the same, since it's a total amount, not a specific account.

Once you've calculated the cash flows for each section, subtract any outflows from your inflows to determine your net cash flow position. This will give you a clear picture of your business's financial health and help you make informed decisions about how to manage your finances.

You can also use accounting software like Xero to create a cash flow statement. With Xero, you can easily import bank statements, invoices, and receipts into the system and use them to identify sources of income and expenses. This makes it quick and straightforward to calculate your net cash flow position.

Here's an example of how to create a cash flow statement using Xero:

Remember to check the figure at the end is correct and ensure the calculation is correct if you add categories to each section.

You can download a cash flow statement template to make managing your small business finances easier. This template allows you to track income and expenses, calculate net cash flows, and view up-to-date information about your financial health.

The template provides a simple way to manage your finances, making it a great option for small businesses. By using this template, you can easily identify areas where you need to improve your cash flow.

Here are some key features of a cash flow statement template:

Keep in mind that a cash flow statement template is just a starting point, and you'll need to regularly review and update it to ensure accuracy.

If you're looking for reliable resources to help you with examples and templates, check out the following:

The "Example and Template" article has a comprehensive section on free template websites, including Canva and Microsoft Templates, which offer a wide range of customizable templates.

You can find pre-made examples in the article's section on "Real-World Examples", which showcases how templates can be applied to various industries and situations.

The "Best Practices" section of the article highlights the importance of using clear and concise language in your templates, which can be achieved by following the guidelines outlined in that section.

For more information on creating effective examples, refer to the article's "Step-by-Step Guide", which provides a detailed walkthrough of the process.

A cash flow statement is a financial document that shows the inflows and outflows of cash for a business over a specific period. It's essential to understand what this statement does and how it's created.

The statement is broken down into three sections: Cash Flow from Operating Activities, Cash Flow from Investing Activities, and Cash Flow from Financing Activities.

To get a rough idea of what this cash flow statement is doing, let's look at some examples. A red dollar amount, like ($30,000) next to "Increase in inventory", means inventory increased by $30,000 on the balance sheet. This decrease in cash is due to buying $30,000 worth of inventory.

Black dollar amounts, like $20,000 next to "Depreciation", increase cash because depreciation doesn't actually decrease cash. So, we add it back to net income.

Here are some key takeaways from the examples:

By looking at the cash flow statement, a business can see if it's losing money, but there are other things to consider, like whether the slow month was expected.

Managing your small business finances can be a daunting task, but with the right tools, it can be made simpler.

Our cash flow statement template is an easy and efficient way to track income and expenses, calculate net cash flows, and view up-to-date information about your financial health.

This template will help you easily track income and expenses, making it easier to manage your finances.

You can download our cash flow statement template for free, and it's a great starting point for creating a comprehensive financial plan.

To use this template, simply enter your business name, opening month balance, and calculate the cash flows for each section.

Here's a step-by-step guide to using the template: