contoh cash flow business plan

EXAMPLE: On January 2 (as a New Year's resolution), Emme starts work on a cash flow projection for the next 12 months. She starts by putting the $5,000 she has in her business bank account in the "Cash at Start of Month" column for January. In her "Cash Coming In" section, she includes her cash sales (which are about 75% of her sales) and her credit sales (about 25% of her sales) on separate lines. She adds in all of the cash sales, but only 80% of her credit sales, because some percentage of her credit customers always take longer than 30 days to pay. In the "Cash Going Out" section, Emme includes her variable and fixed costs, putting the annual insurance premium she's about to pay in the January column rather than spreading it over 12 months.

It's easy to see why a cash flow analysis can give you a more realistic picture of whether your business will have the money to pay its expenses—in other words, sufficient cash flow to stay afloat—than a P&L forecast. This is especially true for companies that make sales on credit, because typically some credit sales are not paid within the expected 30 days (and others not at all). A P&L forecast does not account for late or missing payments, and this is why it's so important to do a cash flow analysis as well.

EXAMPLE: After filling in her cash flow projection, Emme realizes that her account will go significantly negative in the slow summer months. She may not even be back in the black in December, her biggest sales month, because she has estimated that about $500 per month in payments on credit sales will be late. (Though if she eventually gets caught up collecting her accounts receivable, she will be profitable for the year.) But given that some customers will always pay late, she knows that if she can't reduce her costs in some way, she will need some cash to tide herself over in some months, especially during the summer. Because she has already cut her own pay in half and trimmed other expenses to the bone, she'll have to bring in money from extra sales, provide extra services, or get a loan from family, friends, or a bank line of credit.

Despite what your P&L forecast says about your company being profitable or breaking even over the next six to 12 months, if your cash flow is projected to go negative, it means you're not going to be able to pay your bills when they become due, and you'll have to bring in more income or borrow some cash to cover the shortfalls.

EXAMPLE: Going back to her spreadsheet, Emme sees that a loan of $8,000 would cover the shortfall, even accounting for making a small loan payment. After December sales are in, she'd still have a balance of $5,000. But Emme also sees that even if she gets a loan, it would let her business survive only about 12 to 18 months of lower sales before again going cash-negative the next summer. In short, she needs to make sure that she can boost her sales back to her previous levels within the next 12 to 18 months, or she risks going in the red again before paying back the loan.

Emme sets about thinking how to come up with the extra $8,000. Her first thought is having a one-time sale. But even at her usual 55% profit margin , she would need to sell an extra $14,500 in clothes to generate that much gross profit. And discounting prices for a big sale would lower her profit margin, meaning she'd have to sell more. (If she sold her inventory at a 20% discount, her profit margin would be less than 45%, and she'd need to bring in more than $18,000 in additional sales.) Realizing that she doesn't have a realistic chance of selling that much inventory, she goes looking for a loan. When family, friends, and the bank turn her down, her last resort is to take out a $8,000 home equity line of credit. This will allow her to dip into it as needed to tide her over. In the meantime, she gets to work on a clever marketing plan to boost sales until better times are here.

Now it's time for the next step, which is to focus on your current cash position with an eye to improving it. If cash is flowing out of your business significantly faster than it's coming in, you need to examine three aspects of your cash flow:

To fix your cash flow, you need more money coming into your business (increase sales, collect past-due accounts receivable), less money going out of your business (reduce costs of goods and labor), and less money tied up in your business (reduce inventory and leased equipment). Many of these things will raise your profit margin. For more information, see our article on profit and loss forecast and gross profit margin .

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Cash Flow Analysis

What is a Cash Flow Analysis?

The cash flow analysis refers to the examination or analysis of the different inflows of the cash to the company and the outflow of the cash from the company during the period under consideration from the different activities, which include operating activities, investing activities, and financing activities.

IronMount Corp and BronzeMetal Corp (both hypothetical companies) had identical cash positions at the beginning and end of 2007. Each company also reported a net income of $225,000 for 2007. Which company is displaying elements of cash flow stress? What factors cause you to reach this conclusion?

Let’s say Company ABC has just started a business and earned revenue of $100 this year. And as per the record, their expenses are $60. Now in general terms, you would say Company ABC has made a = $(100 – 60) = $40 profit. However, in the case of Company ABC, it’s seen that they have a revenue of $100 this year, but they have collected only $80 this year, and the remaining they will collect in the next year. In the case of expenses, they have only paid the US $50 this year and the remaining in the next year. So if we calculate the net cash inflow this year, it would be $(80 – 50) = $30.

So, even if Company ABC has made a profit of $40 this year, its net cash inflow is $30.

In Cash Flow Analysis, we will include the cash related to operations and expenses and incomes from investing and financing activities.

#1 – cash flow from operations, colgate’s cash flow from operation example, #2 – cash flow from investment activities, colgate’s cash flow from investment example, #3 – cash flow from financing activities, colgate’s cash flow from financing example, cash flow analysis example – ironmount vs. bronzemetal, cash flow analysis example – alphabet (google), cash flow analysis example – amazon, cash flow analysis example – box inc, limitations, cash flow analysis video, recommended articles.

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Step by Step Cash Flow Statements Analysis

Cash Flow Analysis is divided into three parts – Cash flow from Operations, Cash flow from Investments, and Cash flow from financing. We discuss each of these by one.

Cash flow from the operation means accounting for cash inflows generated from the normal business operations and their corresponding cash outflows.

There are two ways to calculate cash flow from operations – 1) the Direct and 2) the Indirect method.

The indirect method is used in most cases.

Here we will look at only the indirect method for computing cash flow from Operations.

Computation of Cash Flow from Operations:

Learn Cash Flow from Operations in detail – Cash Flow from Operations Cash Flow From Operations Cash flow from Operations is the first of the three parts of the cash flow statement that shows the cash inflows and outflows from core operating business in an accounting year. Operating Activities includes cash received from Sales, cash expenses paid for direct costs as well as payment is done for funding working capital. read more

Cash Flow Analysis - Operating Activities

source: Colgate SEC Filings

Other than operations, the company also invests in assets that can provide them with greater returns. Cash Inflow from investing activities would include purchasing long-term assets or securities or selling them (except cash) and providing and taking loans. We need to find out how many cashless (loss or gain) activities are done during the period so we can take them into account while ascertaining the net cash inflow.

Though there is not much to be talked about here, two things should be taken into account.

Learn Cash Flow from Investments in detail – Cash flow from Investments Cash Flow From Investments Cash flow from investing activities refer to the money acquired or spent on the purchase or disposal of the fixed assets (both tangible and intangible) for the business purpose. For instance, the purchase of land and joint venture investment is cash outflow, while equipment sale is a cash inflow. read more

Cash Flow Analysis - Investing Activities

Cash Flow Analysis - Financing Activities

Learn Cash Flow from Financing Activities in detail – Cash Flow from Financing Activities Cash Flow From Financing Activities Cash flow from financing activities refers to inflow and the outflow of cash from the financing activities like change in capital from securities like equity or preference shares, issuing debt, debentures or repayment of a debt, payment of dividend or interest on securities. read more

Let’s go back to the earlier cash flow analysis example that we started with – IronMount Corp and BronzeMetal Corp had identical cash positions at the beginning and end of 2007. Each company also reported a net income of $225,000 for 2007.

Perform its Cash Flow Analysis.

IronMount and Bronze Medal, both companies, have the same end-of-the-year cash of $365,900. Additionally, changes in cash during the year are the same at $315,900. Which company is displaying elements of cash flow stress?

source: ycharts

Even if cash flow analysis is one of the best tools for investors to find out whether a company is doing well, cash flow analysis also has a few disadvantages. We will have a look at them one by one.

To understand a company and its financial affairs, you need to look at all three statements and all the ratios. Only cash flow analysis would not be able to give you the right picture of a company. Look for net cash inflow, but also ensure you have checked how profitable the company has been over the years.

Also, cash flow analysis is not an easy thing to calculate. If you want to calculate cash flow analysis, you need to understand more than the basic level of finance. And you also need to understand financial terms, how they are captured in the statements, and how they reflect the income statement Income Statement The income statement is one of the company's financial reports that summarizes all of the company's revenues and expenses over time in order to determine the company's profit or loss and measure its business activity over time based on user requirements. read more . Thus, if you want to do a cash flow analysis, first know how to see the income statement and understand what to include and what to exclude in the cash flow statement.

Thank you for such professionally excellent analysis of cash flow

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How to create a cash flow projection (and why you should)

For small business owners, managing cash flow (the money going into and out of your business) can be the difference between a thriving, successful company and filing for chapter 11 (aka bankruptcy).

In fact, one study showed that 30% of businesses fail because the owner runs out of money, and 60% of small business owners don’t feel knowledgeable about accounting or finance .

Understanding and predicting the flow of money in and out of your business, however, can help entrepreneurs make smarter decisions, plan ahead, and ultimately avoid an unnecessary cash flow crisis.

After all, knowing whether the next month will see a financial feast or famine can help you make better decisions about spending, saving, and investing in your business today.

One way to do this (without hiring a psychic)? Cash flow projection.

What is cash flow projection?

Cash flow projection is a breakdown of the money that is expected to come in and out of your business. This includes calculating your income and all of your expenses, which will give your business a clear idea on how much cash you'll be left with over a specific period of time.

If, for example, your cash flow projection suggests you’re going to have higher than normal costs and lower than normal earnings, it might not be the best time to buy that new piece of equipment.

On the other hand, if your cash flow projection suggests a surplus , it might be the right time to invest in the business.

Accounts receivable: The money you owe to vendors. Accounts payable: the money owed to your business.

Cash flow projections: The basics

In order to properly create a cash flow forecast, there are two concepts you should be aware of: accounts receivable (cash in) and accounts payable (cash out)

A cash flow projection (also referred to as a cash flow forecast) is essentially a breakdown of expected receivables versus payables. It ultimately provides an overview of how much cash the business is expected to have on hand at the end of each month .

Cash flow projections typically take less than an hour to produce but can go a long way in helping entrepreneurs identify and prepare for a potential shortfall, and make smarter choices when running their business.

Send invoices, get paid, track expenses, pay your team, and balance your books with our free financial management software.

How to calculate your cash flow projection

Calculating your cash flow projection can seem intimidating at first, but once you start pulling together the necessary information, it isn’t so scary. Let’s walk through the first steps together.

1. Gather your documents

A screenshot of a Wave dashboard, showing documents needed for cash flow forecast. Includes reports on financial statements, taxes, and payroll.

This includes data about your business’s income and expenses.

2. Find your opening balance

Your opening balance is the balance in your bank at the start of a period. (So, if you’ve just started your business, this is zero.)

Your closing balance is the amount in your bank at the end of the period.

So the opening balance in one month should equal the closing balance at the end of the previous month. But more on this later.

3. Receivables (money received/cash in) for next period

This is an estimate of your anticipated sales (such as invoices you expect to be paid, or payments made on credit), revenue, grants, or loans and investments.

4. Payables (money spent/cash out) for next period

Again, this is an estimate. You should consider things like materials, rent, taxes, utilities, insurance, bills, marketing, payroll, and any one-time or seasonal expenses.

“Seasonality can have a material effect on the cash flow of your business,” Andy Bailey, CEO of Petra Coach, wrote in an article for Forbes . “A good cash flow forecast will anticipate when cash outlays and cash receipts are higher or lower so you can better manage the working capital needs of the company.”

5. Calculate cash flow

Now, let’s bring it all together using this cash flow formula : Cash Flow = Estimated Cash In – Estimated Cash Out

6. Add cash flow to opening balance

Now, you’ll want to add your cash flow to your opening balance, which will provide you with your closing balance.

Put it all together: How a cash flow projections look on paper

In practical terms, a cash flow projection chart includes 12 months laid out across the top of a graph, and a column on the left-hand side with a list of both payables and receivables.

Here are all the categories you’ll need for your cash flow projection:

This column typically begins with “operating cash”/opening balance or unused earnings from the previous month. For example, if your cash flow projection for January suggests a surplus of $5,000, your operating cash for February is also $5,000.

Below operating cash, list all expected accounts receivable sources—such as sales, loans, or grants—leaving a space at the bottom to add them all up.

Next, list all potential payable items—such as payroll, overhead, taxes, and inventory—with another space to add their total below.

Once you have your numbers prepared, simply subtract the total funds that are likely to be spent from the cash that is likely to be received to arrive at the month’s cash flow projection.

Once you’ve calculated your monthly cash flow, take the final number and list it at the top of the next month’s column under operating cash, and repeat the process until you’ve got a forecast for the next 12 months.

After the end of each month, be sure to update the projection accordingly, and add another month to the projection.

If you’re a Wave customer and you prefer to use a ready-made chart to help you create your projection, you can pull your financial data from the Reports section of Wave and feed it into this cash flow forecast template .

Be realistic with your cash flow forecast

Cash flow projections are only as strong as the numbers behind them, so it’s important to be as realistic as possible when putting yours together.

For example, being overly generous in your sales estimates can compromise the accuracy of the projection.

Furthermore, if you provide customers with a 30-day payment schedule and a majority pay on the last possible day, make sure that cycle is accurately reflected in your projection.

On the payables side of the equation, try to anticipate annual and quarterly bills and plan for an increased tax rate if the business is likely to reach a new tax level.

Those who pay their staff on a bi-weekly basis also need to keep an eye out for months with three payroll cycles, which typically occurs twice each year.

“Monthly or quarterly forecasts generally are more useful for stable, established businesses,” Bailey also wrote . “Weekly projections will be essential for companies scaling up or going through significant changes, such as a restructuring or merger/acquisition.”

“We like to encourage business owners—especially those who are starting out—to create a 13-week forecast for cash,” William Lieberman, the Managing Partner of The CEO’s Right Hand, told Forbes . “Each week, update the forecast based on what happened the previous week and extend the forecast window by one more week. In this way, you can keep a close watch on exactly what’s coming in and going out so you can be more proactive in addressing potential cash crunches.”

Those who want to be extra cautious with their projections can even include an “other expenses” category that designates a certain percentage of revenues for unanticipated costs. Putting aside some extra cash as a buffer is especially useful for those building their first projections, just in case they accidentally leave something out.

What now: Use your cash flow forecast to make data-driven decisions

Building the cash flow projection chart itself is an important exercise, but it’s only as useful as the insights you take away from it. Instead of hiding it away for the remainder of the month, consult your cash flow projection when making important financial decisions about your business.

If, for example, you anticipate a deficit in the months ahead, consider ways to cut your costs , increase sales, or save surpluses to help make up the difference. If you notice that payments often come in late, consider introducing a late penalty for bills past due.

You can also consult your cash flow projection to determine the best time to invest in new equipment, hire new staff, revise your pricing and payment terms, or when to offer promotions and discounts.

Have clients that regularly procrastinate on payments? Check out these tactics to get your clients to pay you faster .

Improving the accuracy of cash flow projections over time

Once you’re in the habit of creating cash flow projections, it becomes easier to improve their accuracy over time.

Comparing projections to actual results can help you improve the accuracy of your cash flow projections, and help identify longer-term patterns and cycles. Seasonal changes in revenue, patterns that contribute to late payments, and opportunities to cut costs will all become more apparent with each new cash flow projection.

While all these benefits won’t come all at once, entrepreneurs can use their cash flow projection to become better operators and better decision makers with each passing month.

No jargon, no training, no payments necessary.

The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.

Free Cash Flow Statement Templates

Smartsheet Contributor Andy Marker

May 8, 2017

A cash flow statement, also referred to as a statement of cash flows, shows the flow of funds to and from a business, organization, or individual. It is often prepared using the indirect method of accounting to calculate net cash flows. The statement is useful for analyzing business performance, making projections about future cash flows, influencing business planning, and informing important decisions. The term “cash” refers to both income and expenditures and may include investments and assets that you can easily convert to cash. By conducting a cash flow analysis, a business can evaluate its liquidity and solvency, compare performance among accounting periods, identify cash flow drivers to support growth, and plan ahead to maintain a positive cash position.

Below you’ll find a collection of easy-to-use Excel templates for accounting and cash flow management, all of which are fully customizable and can be downloaded for free.

Accounts Payable Template

Download Accounts Payable Template

Excel | Smartsheet

This accounts payable template tracks suppliers, order numbers, and amounts due to help you manage payments and due dates. Easily organize ordering stock or supplies from multiple vendors with this template for greater efficiency and fewer errors.

Accounts Receivable Template

Download Accounts Receivable Template

Excel | Smartsheet

Don’t let balances owed to your business slip through the cracks. This template accounts receivable template lists customers, invoice tracking details, amounts due, and outstanding balances. Keeping track of these accounts can inform your collections process by helping you quickly identify which overdue payments have aged significantly.

Balance Sheet Template

Download Balance Sheet Template

A balance sheet provides a summary of financial health in a single, brief report. With this balance sheet template, you can assess the financial standing of a business by examining assets, liabilities, and equity. Business owners can use it to evaluate performance and communicate with investors.

Income Statement Template

Download Income Statement Template

Use this income statement template to assess profit and loss over a given time period. This template provides a clear outline of revenue and expenses along with net income figures. You can edit the template to match your needs by adding or removing detail, and create an income statement for a large or small business.

Simple Cash Flow Template

Download Simple Cash Flow Template

This template works for any length of time and allows you to compare different periods for a quick analysis of cash flows. It include sections for an itemized list of revenue and expenditures, automatic calculations of totals and net cash flows, and a simple layout for ease of use. You can modify the template by adding or removing sections to tailor it to your business.

3-Year Cash Flow Statement Template

Download 3-Year Cash Flow Statement Template

Use this statement of cash flows template to track and assess cash flows over a three-year period. The template is divided into sections for operations, investing, and financing activities. Simply enter the financial data for your business, and the template completes the calculations.

Monthly Cash Flow Template

‌ Download Monthly Cash Flow Template

This comprehensive template offers an annual overview as well as monthly worksheets. Create a detailed monthly cash flow report to analyze performance or plan for the future. Each month has a separate sheet so that you can get a thorough picture of cash inflows and outflows for both short- and long-term periods.

Daily Cash Flow Template

‌ Download Daily Cash Flow Template

Add receipts and payments to this daily cash flow template to get a deep understanding of business performance. You can customize the list of cash inflows and outflows to match your company’s operations.

12-Month Cash Flow Forecast

Download 12-Month Cash Flow Forecast

Use this template to create a cash flow forecast that allows you to compare projections with actual outcomes. This template is designed for easy planning, with a simple spreadsheet layout and alternating colors to highlight rows. You get a snapshot of cash flows over a 12-month period in a basic Excel template.

Quarterly Cash Flow Projections Template

‌ Download Quarterly Cash Flow Projections Template

Cash flow projection templates can cover a variety of time frames, including the quarterly format offered here. Quarterly projections are useful for new businesses and those wanting to align cash flow projections with upcoming goals and business activities. Use the template to create projections and then compare the variance between estimated and actual cash flows.

Cash Flow Analysis Template

‌ Download Cash Flow Analysis Template

You can use this template to perform a cash flow sensitivity analysis in order to anticipate shortfalls and help your business maintain a positive cash position. This analysis can help you make more accurate cash flow predictions and inform your business decisions.

Discounted Cash Flow Template

‌ Download Discounted Cash Flow Template

This template allows you to conduct a discounted cash flow analysis to help determine the value of a business or investment. Enter cash flow projections, select your discount rate, and the template calculates the present value estimates. This template is a useful tool for both investors and business owners.

Nonprofit Cash Flow Projection Template

‌ Download Nonprofit Cash Flow Projection Template

This template is designed with nonprofit organizations in mind and includes some common income sources, such as donations and grants, as well as expenditures. The template covers a 12-month period and makes it easy to see annual and monthly carryover so that you can track a rolling cash balance. Create a detailed list of all receipts and disbursements that are relevant to your organization.

Personal Cash Flow Template

‌ Download Personal Cash Flow Template

Individuals can manage their personal cash flow with this free template. The simple layout makes it easy to use and provides a financial overview at a glance. Keep track of how you are spending money to gain more control over your financial habits and outlook.

Trial Balance Worksheet

Download Trial Balance Worksheet

Use this trial balance template to check your credit and debit balances at the end of a given accounting period, and to support your financial statements. The template shows ending balances for specific accounts, as well as total amounts for the activity period and the overall difference. This is a simple worksheet that you can customize to reflect your business type and the products or services it offers.

Excel Bookkeeping and Cash Flow Templates

To help you get started creating a cash flow statement or forecast, we’ve included a variety of customizable templates that you can download for free. Simply adjust your chosen template to fit your specific goals and the intended audience. Each template offers a clean, professional design and is intended to save you time, boost efficiency, and improve accuracy. Just enter your financial data, and the templates will perform automatic calculations for you to analyze. By combining your cash flow statement with a balance sheet, income statement, and other forms, you can manage cash flow and get a comprehensive understanding of business performance. Smartsheet offers additional Excel templates for financial management, including business budget templates .

Elements of a Cash Flow Statement

A cash flow statement is typically divided into the following sections to distinguish among different categories of cash flow:

A statement of cash flows can summarize information for any accounting period, but if you’re starting a new business or planning for the months ahead, creating a cash flow projection can help you anticipate how much money your business will have coming in and going out during a future time frame.

Creating a Cash Flow Forecast

Projecting future cash flows can give you greater financial control, provide a deeper understanding of a company’s performance, help identify shortfalls in advance, and support business planning so that activities and resources are properly aligned. New businesses trying to secure a loan may also require a cash flow forecast.

In order to set yourself up for success, it’s imperative to be realistic when forecasting cash flows. You can build your projections on a foundation of key assumptions about the monthly flow of cash to and from your business. For instance, knowing when your business will receive payments and when payments are due to outside vendors allows you to make more accurate assumptions about your final funds during an operating cycle. Estimated cash flows will always vary somewhat from actual performance, which is why it’s important to compare actual numbers to your projections on a monthly basis and update your cash flow forecast as necessary. It’s also wise to limit your forecast to a 12-month period for greater accuracy (and to save time). On a monthly basis, you can add another month to create a rolling, long-term projection.

A cash flow forecast may include the following sections:

Keep in mind that while many costs are recurring, you also need to consider one-time costs. Additionally, you should plan for seasonal changes that could impact business performance, and upcoming promotional events that may boost sales. Depending on the size and complexity of your business, you may want to delegate the responsibility of creating a cash flow forecast to an accountant. However, small businesses can save time and money with a simple cash flow projections template.

A More Collaborative Cash Flow Statement Template in Smartsheet

Using a template is essential to helping you get started managing your organization's financials quickly. But, creating and managing your cash flow statement may require multiple stakeholders to weigh in and make updates. That’s why it’s important to find a template with more advanced functionality like notifications and reminders and enhanced collaboration features to ensure everyone is kept in the loop. One such template is the cash flow statement template in Smartsheet.

A Smartsheet template can improve how your team tracks and reports on cash flow - use row hierarchy to sum line items automatically, checkboxes to track stakeholder approval, and attachments to store item details directly to the rows in your sheet. Easily create reports to roll up annual, quarterly, or monthly cash flow details so you’ll always have a real-time view of the financial health of your business.

See how easy it is to track and manage your cash flow statement with a template in Smartsheet.

Create a Cash Flow Statement in Smartsheet

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Cash Flow Statement Template

The Cash Flow Statement , or Statement of Cash Flows , summarizes a company's inflow and outflow of cash, meaning where a business's money came from (cash receipts) and where it went (cash paid). By "cash" we mean both physical currency and money in a checking account. The cash flow statement is a standard financial statement used along with the balance sheet and income statement . The statement usually breaks down the cash flow into three categories including Operating , Investing and Financing activities. A simplified and less formal statement might only show cash in and cash out along with the beginning and ending cash for each period.

To perform a cash flow analysis , you can compare the cash flow statement over multiple months or years. You can also use the cash flow analysis to prepare an estimate or plan for future cash flows (i.e. a cash flow budget ). This is important because cash flow is about timing - making sure you have money on hand when you need it to pay expenses, buy inventory and other assets, and pay your employees.

A cash flow analysis is not the same as the business budget or profit and loss projection which are based on the Income Statement. However, for a small uncomplicated business operating mainly with cash instead of credit accounts, there may seem to be little difference.

License : Private Use (not for distribution or resale)

"No installation, no macros - just a simple spreadsheet" - by Jon Wittwer

Other Versions

Description.

The spreadsheet contains two worksheets for year-to-year and month-to-month cash flow analysis or cash flow projections.

Update 9/30/2021: You can now try the cash flow template in Spreadsheet.com which uses a set of categories based on common public stock financial statements.

Cash Flow Statement Essentials

Operating activities.

Operating activities make up the day-to-day business, like selling products, purchasing inventory, paying wages, and paying operating expenses. Perhaps the most important line of the cash flow statement is the Net Cash Flow from Operations . This section of the statement is associated with the Current Assets and Current Liabilities sections of the Balance Sheet, as well as the Revenue and Expenses section of the Income Statement .

Investing Activities

Investing activities include buying and selling assets like property and equipment, lending money to others and collecting the principal, and buying/selling investment securities. This section of the statement is associated with the Long-Term Assets section of the balance sheet .

Financing Activities

Financing activities include borrowing from creditors and repaying loans, issuing and repurchasing stock, and collecting money from owners/investors, and payment of cash dividends. This section of the statement is associated with the Long-Term Liabilities and Owners'/Stockholders' Equity from the Balance Sheet.

I'm not going to try to explain how to prepare or analyze the cash flow statement other than to say that if you have the records of all the cash transactions, then the preparation can be done using the simple method of categorizing the receipts and payments into the three categories listed above. The indirect method can be used to create the statement of cash flows from the information in the balance sheet and income statement, but I'll leave that explanation for the textbooks. For more information, see the references below.

References:

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Related templates.

Financial Statements

What is Cash Flow?

Cash flow is a vital part of your business, but it doesn’t have to be complicated. Check out our guide to learn everything you need to know about cash flow.

Cash is the lifeblood of every business and running out of it is the number one reason that small businesses fail. Even if you are making plenty of sales if you don’t have enough cash in the bank your business won’t be able to pay its bills and stay open.

That’s why it’s so important for businesses to understand the basics of cash flow and cash flow forecasting . Here’s everything we’ll cover in this guide to get you up to speed on everything regarding cash flow:

Positive cash flow

Negative cash flow.

Cash burn rate and runway

Why cash flow forecasting is important

Forecasting cash flow

How to improve your cash flow.

Additional reading

Cash Flow Definition

Cash flow measures how much money is moving into and out of your business during a specific period of time.

Businesses bring in money through sales, returns on investments, and from loans and investments—that’s cash flowing into the business.

And businesses spend money on supplies and services, as well as utilities, taxes, loan payments, and other bills—that’s cash flowing out.

Cash flow is measured by comparing how much money flows into a business during a certain period of time compared to how much money flows out of that business during that same period. Usually, cash flow is measured over the course of a month or a quarter.

How to calculate cash flow

The simplest formula for calculating cash flow is:

CASH RECEIVED – CASH SPENT = NET CASH FLOW

If your net cash flow number is positive, your business is cash flow positive and accumulating cash in the bank.

If your net cash flow number is negative, your business is cash flow negative and you are finishing the month with less cash than you started with.

What’s the difference between Cash and Profit?

Believe it or not, it’s possible for your business to be profitable but still run out of cash. That may not be intuitive at first, but it’s because cash and profits are very different things. Here’s why.

Profits can include sales that you’ve made but haven’t been paid for yet.

Cash, on the other hand, is the amount of money you actually have in your bank account. It represents the liquidity of your business and basically, if you can’t use it right now to pay your bills, it’s not cash.

For example, if you’re making a lot of sales but you invoice your customers and they pay you “net 30,” or within 30 days of receiving the invoice, you could have lots of revenue on paper but not a lot of cash in your bank account because your customers haven’t paid you yet. Those sales will only show up on your income statement .

If the money your customers owe you hasn’t made it into your bank account, it won’t appear on your cash flow statement yet. It isn’t actually available to your business at this point. It’s still in your customers’ hands, even though you’ve invoiced them for it. You keep track of the money your customers owe you in accounts receivable .

Meanwhile, you can only pay your bills with real cash in your bank account. Without that cash in hand, it’s going to be tough to fulfill orders, meet payroll, and pay your rent. That’s why keeping track of cash flow is so important. To keep your business afloat, you need to have a good sense of what comes in and what goes out of your business on a monthly basis and do everything you can to remain cash flow positive.

If you want to learn more, you can check out our more detailed explanation of the difference between cash flow and profits .

How to analyze a cash flow statement

When analyzing your historical cash flow statement you’re looking at the amount of real cash you have on hand at the beginning of the month, compared to your cash at the end of the month. You can also look at your cash flow over different time frames – quarterly, for example – but a good rule of thumb is to look at your cash flow on a regular basis to better understand any changes in the health of your business.

To see a visual example of how this works within a business, you can download this free cash flow example as a PDF or Excel sheet .

When conducting a cash flow analysis, you’ll want to be sure you understand the following key terms.

Positive cash flow is defined as ending up with more liquid money on hand at the end of a given period of time compared to what was available when that period began.

Let’s say you started with $1000 in cash at the beginning of the month. You paid $500 in bills and expenses, and your customers paid you $2,000 for your services. Good news: Your cash flow is positive, at $2,500 for the month.

If you have positive trending cash flow, it’s easier to:

Negative cash flow is when more cash is leaving the business than is coming in. When cash flow is negative, the amount of cash in your bank account is shrinking. This might not be a problem if your business has plenty of cash in the bank. But, it does mean that your business will eventually run out of money if it doesn’t become cash flow positive at some point.

Let’s say you started with $1,000 in the bank at the beginning of the month. You paid $1,500 in bills and expenses, and even though you did plenty of work and invoiced your customers for $3,000 worth of services, your customers only actually paid you $200. You’re still waiting for the rest of your payments to come in. Your cash flow is negative: -$300 for the month.

If you don’t have any reserves, your rent check might bounce. If you have a line of credit already established, you might rely on that to pay part of your bills. Maybe you forecasted your cash flow, and you knew that you were going to be short that month, so you made a plan to be able to cover your expenses.

One month of negative cash flow won’t necessarily tank your business. But when you start to see a trend, and you don’t do anything to reverse it (or when you’re unpleasantly surprised because you haven’t been tracking your cash flow), that’s when your business is at risk.

Cash Burn Rate and Runway

New businesses and startups often have negative cash flow when they’re first getting started. They have lots of bills to pay while they’re getting up and running and there aren’t a lot of sales yet. As revenue from sales starts to come in, hopefully, cash starts to flow into the business instead of just flowing out. This is why new businesses often need investment and loans to get started—they need cash in the bank to cover all of the negative cash flow that happens during the early days of the business.

When first starting out, it’s important to track Cash Burn Rate, which is essentially your negative cash flow number – the amount of money you are “burning” each month. You can then use that number to figure out how many months of cash you have left – this is your “runway.” Read our detailed explanation of cash burn rate and cash runway to learn more about how to find, measure, and adjust these metrics.

Negative cash flow can also happen when a business chooses to invest in a new opportunity. The business could be betting that investing in a new opportunity now will pay off in the future. That investment could cause negative cash flow for some time, so it’s important to keep a close eye on cash and have a solid cash flow forecast in place so you know if your business is on track to stay in the black.

You’ll want to monitor your historical cash flow at least once a month so you can start spotting trends with what’s actually happening with your cash inflow and outflow.

But it’s not just measuring the past and present, forecasting your cash flow can also help you anticipate when your business might run low on cash in the future. You can then plan ahead and open a line of credit or find other loans and investments to help you cover that point in the future when you’re going to need a little extra cash.

It’s a lot easier to get help from a bank or investor before you’re actually in a crisis where you’re not sure you can cover your bills. If you wait until you’re really in trouble to take action, lenders may see you as too much of a risk and turn down your request.

Your cash flow forecast can also help you plan the best time to make a big purchase, like a new piece of equipment or a company vehicle.

Don’t forget to account for the unknown, though. Business owners can’t predict the future—particularly when it comes to any unforeseen expenses they might incur (e.g., a truck breaking down prematurely and needing replacement, or a data breach resulting in a forced increase in IT spend). And they also can’t know for certain that their clients will pay their bills on time.

So, when you’re forecasting or looking at your cash flow statement for last month, remember that having some buffer is a good thing. You don’t want to be in a position where you’ve allocated every single penny, to the point where you can’t accommodate unexpected expenses.

Part of reviewing your cash flow should be thinking about risk, and the effect an unexpected expense will have on your available cash—and ultimately, your ability to pay your bills.

How to forecast your cash flow and build a cash flow statement

A cash flow projection is all about predicting your money needs in advance.

Unfortunately, though, forecasting your cash flow is a bit more complicated than forecasting other aspects of your business such as your sales and expenses. Your cash flow statement takes inputs from your revenue projections, your expense projections, and also your inventory purchase plans if your business keeps inventory on hand.

In addition to that, you need to predict when your customers will pay you – will all of them pay on time? Or will some take longer to pay?

A tool like LivePlan can greatly simplify cash flow forecasting, but you can also do it yourself with spreadsheets if you want.

There are two methods you can use to build a cash flow statement : the direct method and the indirect method . While they will both arrive at the same end-result and predict how much cash you will have in the bank in the future, they accomplish that goal in different ways.

The direct method of forecasting cash flow

The direct method provides a very clear view of how cash moves in and out of a business. You essentially add up all the cash that your business has received from various sources and then subtract all the cash that is paid out to suppliers, vendors, employees, etc. This number will be the amount of cash you’ve either added or subtracted from your bank account during the month.

The indirect method of forecasting cash flow

The indirect method starts with your net income from your Profit and Loss Statement and then makes adjustments to that number to account for non-cash expenses such as depreciation. From there you make adjustments to account for changes in inventory, accounts receivable , and accounts payable .

The indirect method is very common for building historical cash flow statements because the numbers that are required are all easily generated from your accounting system. This makes it a fairly popular method for forecasting cash flow, although the direct method is generally easier for people who aren’t as familiar with the intricacies of accounting.

Read our guide for a more detailed explanation of the two methods of creating a cash flow statement .

If you’re forecasting cash flow using spreadsheets, I recommend using the direct method. It’s easier and more straightforward.

Essentially, you want to create future estimates of when you’ll receive money from customers and when you’ll pay your bills.

It’s not critical to forecast every individual invoice and bill payment, though. Forecasting is about helping you make strategic decisions about your business, so making broader estimates in your forecast is OK.

Read our guide on forecasting cash flow to get a detailed explanation of how to create both a direct forecast and an indirect forecast.

If your cash flow is negative or you’re just looking for ways to improve your cash flow in general, there are plenty of options available to you. Here’s a quick list of things you can do:

Depending on your situation, you may use these methods or even consider more drastic measures if the broader economy is impacting your ability to create positive cash flow.

For more detailed advice and information, read our expert troubleshooting tips to improve your cash flow and our guide for managing cash flow in a crisis .

Additional reading to help you better master cash flow

Cash flow is a big topic and there are many other resources that you may find helpful. Here’s our top list of what you should consider reading next:

How to balance cash flow in a seasonal business

Seasonal businesses have unique challenges you’ll want to consider, including variations on cash flow management. Check out these techniques to effectively balance your cash flow and avoid any seasonal surprises. Read more .

Using invoice factoring to safeguard your cash flow

If you have clients or customers who take forever to pay, this can cause cash flow problems for your business. Fortunately, solutions like invoice and spot factoring can act as a safeguard, to help protect your cash flow against future disasters. Read more .

Tips for better cash flow for your business

Solid cash flow management is crucial to business success. If you’re having trouble managing your cash flow, these strategies will help you improve. Read more .

How to get help with a business line of credit

Every business experiences cash flow challenges. Instead of avoiding them, measures like a preemptive line of credit can help keep you running smoothly. Read more .

Noah Parsons

Noah is currently the COO at Palo Alto Software, makers of the online business plan app LivePlan. You can follow Noah on Twitter .

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