What goes into the cash flow statement?

Your business generates cash in many different ways. The Statement of Cash Flows breaks it down into three main sections:

• Cash Flows from Operating Activities – shows what cash has come in and gone out as a result of the main business activities, (such as receipts from customers, payments to suppliers, wages paid to employees and so on.)
• Cash Flows from Investing Activities – includes things such as payments for new assets like office equipment or a new company vehicle. It also includes receipts from the sale of assets, and any investments made.
• Cash Flows from Financing Activities – shows any loan repayments, proceeds from new loans, or money invested into the business or taken out by the owners.

A cash flow statement tells you where the money went.  A profit and loss statement says nothing about principal payments you make to the bank.  You could have reasonably good profits, but the amount of money you pay your bank every month could be putting you out of business.

For small businesses cash is king

Cash flow ensures that a business can pay its bills and staff, keeping the business operational. That’s why the Statement of Cash Flows report is so important. It identifies the cash flowing in and out of a business, and can help you make informed decisions about how your business operates.

While the Profit and Loss includes income that might not yet have been paid by your customers, the cash flow statement looks at all cash receipts and cash expenditure. It also groups the money going in and going out of your business into useful categories.

What benefits does a cash flow statement provide?

The Statement of Cash Flows can help you understand:

Are you generating a cash surplus? Regardless of having to buy new equipment or raising money via loans, this shows you if you’re profitable. And if not, why not?

Did your cash drop because you invested in things that you expect to make you money in the future? This could be buying new equipment, or classic investing in shares etc.

Did you end up with more money in this period because you took out loans? If so, then that tells you in the future that you will lose cash to repay the debt.