A cash flow statement is one of the key financial statements used to analyze and forecast business performance.
Your company cash flow statement shows the movement of cash and cash-equivalents in and out of the business, indicating how profit is being delivered and reinvested.
A cash flow statement shows how cash, and other equivalents like investment profits and convertible assets, moves in and out of a business. By showing the movement of money, as well as the source of the income, you can see how profit is generated and invested – and check there’s enough cash flow to support the day to day running of the business.
Cash flow statements are used by business owners to measure performance and spot opportunities and threats. They’re also crucial for investors, as they show the day to day financial health of the company.
You can create a cash flow statement with the direct method, or build an indirect cash flow statement. The right cash flow statement formula for you will depend on how you want to use the statement and your personal preference – however, the direct method is the most commonly recommended approach.
Many business owners wonder about the importance of their cash flow statement – and the relative value of an income statement vs balance sheet vs cash flow statement. In fact, these 3 documents are all essential financial statements which are used together to understand, manage and improve the performance of any business.
1. Gather all your current financial information for reference – you’ll likely be drawing information from several sources as you populate the cash flow statement template.
2. Review the category headings and edit as required – the document has pre-populated fields covering common headings. However, you can edit and amend as required to cover the type of business you run.
3. Enter your company data following the onscreen prompts – you’ll be asked to add information about operating activities, investing activities and financing activities. Review your cash flow statement and you’re nearly done.
4. Get paid into your Wise business account to cut the costs of international transactions and keep more of your profit for reinvestment – if you’re looking for opportunities to improve your business payments process, you need Wise.
The information you enter into the cash flow statement template will fall into 3 main sections:
Operating activities covers the revenues and costs of the day to day running of your business. Here you’ll find things like buying inventory, paying staff, as well as rent and utility charges for example. The financial information in this segment corresponds to the current assets and liabilities which are shown on your balance sheet, as well as revenues and expenses on your income statement.
Investing activities include longer term costs such as buying machinery or a property, or dealing in equities. The information here corresponds with the detail you’ll find on your company balance sheet, under long-term assets.
Financing activities are associated with the balance sheet items shown under long-term liabilities and owner/stockholder equity. Data in this section will refer to investments, dividends, taking or repaying loans for example.
Now you know how to make a cash flow statement to analyze and manage the day to day financial flow in and out of your business.
You can make the process even easier using our cash flow statement template, to build a document which suits your business and can help you generate more profit.
