Cash Flow Statement

Managing cash flow is crucial for the success of any business, regardless of its size or industry. As the saying goes, “cash is king,” and having a solid understanding of your business’s cash inflows and outflows is essential for making informed decisions. 

What is cash flow?

Cash flow refers to the movement of cash into and out of a company over a specific period. Inflows of cash include cash received from customers, interest income, and proceeds from the sale of assets. Outflows of cash include payments to suppliers, salaries, taxes, interest on loans, and the purchase of assets. A positive cash flow means that more cash is coming in than going out, indicating that a company is generating cash and has the ability to pay its debts, invest in new projects, or distribute dividends to shareholders. Negative cash flow means that more cash is going out than coming in, indicating that a company may have difficulty meeting its financial obligations, may need to borrow money, or may need to raise capital through other means.

The purpose of a cash flow statement is to show the sources of cash, such as operating activities, investing activities, and financing activities, and how the cash was used. The cash flow statement is an essential financial statement which helps businesses to assess their liquidity, financial flexibility, and ability to meet financial obligations. By analyzing the cash flow statement, businesses can make informed decisions about cash management, such as when to invest in new projects, raise capital, or pay down debts.

What is on a cash flow statement? A cash flow statement is a financial statement that summarizes a company’s cash inflows and outflows for a specific period. It provides a detailed picture of a company’s cash position, showing how much cash is available at the beginning of the period, how much cash was generated or used in operations, how much cash was invested in or divested from assets, and how much cash was used to pay off debts or distribute dividends to shareholders..

Your company’s cash flow statement should summarize the inflow and outflow of cash and cash equivalents in three main sections: operating activities, investing activities, and financing activities.

At the end of the cash flow statement, the net change in cash is calculated by adding the cash inflows and subtracting the cash outflows from the beginning cash balance. This net change in cash is then added to the beginning cash balance to arrive at the ending cash balance.

To create a cash flow forecast, a business needs to follow these six steps:

Step 1: Estimate inflows

The first step in creating a cash flow forecast is to estimate the amount of cash that a business expects to receive during a specific period. This can be done by using historical data, market research, sales projections, or other sources of information. It is important to be realistic and conservative when estimating inflows to avoid overestimating revenue and underestimating expenses.

Step 2: Estimate outflows

The second step is to estimate the amount of cash that a business expects to spend during the same period. This includes all the costs associated with running the business, such as salaries, rent, utilities, supplies, inventory, taxes, and other expenses. Again, it is important to be realistic and conservative when estimating outflows.

Step 3: Calculate net cash flow

The third step is to calculate the net cash flow by subtracting outflows from inflows. This will give a business an overall picture of its cash flow position for the specific period.

Step 4: Review and adjust

The fourth step is to review the cash flow forecast and adjust it as necessary. This may involve revising the estimates for inflows and outflows, or making changes to the business plan or financial forecasts. It is important to keep the cash flow forecast up-to-date and accurate to avoid making decisions based on incorrect information.

Step 5: Monitor actual cash flow

The fifth step is to monitor the actual cash flow and compare it to the forecast. This will allow a business to identify any discrepancies and take corrective action if necessary. Regular monitoring of actual cash flow will also help a business to improve its forecasting over time.

Step 6: Use the cash flow forecast 

The final step is to use the cash flow forecast to make informed decisions about the business. This may include identifying potential cash flow problems and taking steps to address them, or using the forecast to plan for future investments or expansion. The cash flow forecast is a valuable tool for managing a business’s finances.

At BSBCON, we know that an accurate cash flow forecast is crucial for businesses to manage their finances effectively. Our business plan writers are experts in financial forecasting. We can help you create a comprehensive and detailed cash flow statement. By estimating your business’s inflows, outflows, and net cash flow, we can provide you with a clear understanding of your cash flow position. Contact us today to get started.