Cash is the lifeblood of every business—especially new and small businesses.
Limited or inconsistent cash flow is one of the most significant challenges that small businesses face. That’s why understanding and managing cash flow is a prerequisite for success.
To get a grasp of the cash flows going in and out of your business, you need a cash flow statement. If you’re having a hard time with financial statements, don’t worry: this guide will help you create a statement of cash flows that’s easy to understand and use.
What is a cash flow statement?
A cash flow statement is a financial statement that summarizes the inflows and outflows of cash transactions during a given period of business operations.
The purpose of a cash flow statement is to record how much cash (or cash equivalents) is entering and leaving the company. Businesses use cash flow statements to get a detailed picture of their cash position, which is essential to a company’s financial health. You can prepare a cash flow statement in a spreadsheet, or find it in your small business accounting software.
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Many small businesses fall into the trap of focusing too much on profit and loss, ignoring company cash flow in the process. Having a clear overview of cash flows will allow you to understand where money is coming from and how it is spent. Ultimately, this will help you make more informed business decisions.
The key elements of a cash flow statement
The cash flow statement format typically includes three main components:
- Operating activities
- Investing activities
- Financing activities
Cash flow from operating activities
The operating activities in the cash flow statement include core business activities. In other words, this section measures the cash…
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