Statement of Cash Flows is the key to understanding the health of your 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.

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.

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Getting the most from your report

Like the new Profit and Loss report, you can modify the layout of your cash flow statement. It’s easy to lay out the order of groups and accounts on your report just the way you want. This is done using an intuitive drag and drop interface. You can also split an account into its debits and credits in the Statement of Cash Flows using the layout editor. As with all new reports, the dates are entered using a convenient date picker to quickly select common dates.

To get the most from this report we recommend working with your advisor to customize the layout. This can provide a more granular breakdown of where you’ve earned and spent cash. This is useful as not every business’s chart of accounts is the same. An advisor can also help you understand the report. You can make informed decisions about how your business operates to maintain good cash flow and identify investment opportunities.

Learn more

Check out this Small Business Guide on managing cash flow.