Alongside the balance sheet and the income statement, the cash flow statement (CFS) is the third of the “holy trinity” of mandatory business forms. Accordingly, as a startup company owner, you have to know the ins and the outs of cash flow statements. Don’t know where to start? Fear not. The following guide and CFS example should help you feel comfortable with the process and ensure that you are ready to handle your startup’s finances.
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What is a Cash Flow Statement?
So what exactly is a cash flow statement? Investopedia defines a cash flow statement as a mandatory statement that records “the amount of cash and cash equivalents entering and leaving a company.” The key function of the CFS is to let investors and lenders take a look at how your company’s finances are being managed and where your cash is coming from.
The Difference between an Income Statement, Balance Sheet and Cash Flow Statement
This sounds familiar, doesn’t it? Don’t the income statement and balance sheet do something similar to the cash flow statement?
While all three of the forms measure a company’s financial standing, each one is distinct from the other. The CFS differs from the other financial statements in that it does not feature a firm’s future incoming/outgoing money that is recorded on credit.
How to Create a Cash Flow Statement
The cash flow statement is divided into three sections:
- Operating Activities—this section records the movement of cash from typical business activities, like sales and purchases of goods/services.
- Investing Activities—this section makes up all transactions pertaining to the sale/purchase of long-term assets.
- Financing Activities—this section can cover anything from transactions with stockholders (which doesn’t apply to many startups), creditors, investments in treasury stock, etc.
A cash flow statement combines those three sections into a simple form that tallies the company’s overall balance. You can find a simple CFS example on any basic accountancy website. We threw one together so that you can check out how it all works:
|Cash Flow from Operating Activities|
|Cash received from customers||$80,000|
|Cash paid to suppliers, staff & employees||($30,000)|
|Cash generated from operating activities||$50,000|
|Net cash flow from operations||$32,300|
|Cash Flow from Investment|
|Proceeds from equipment sales||$200|
|Net cash flow from investment||($5,800)|
|Cash Flow from Financing|
|Proceeds from capital contributed||$2,000|
|Proceeds from loans||$1,000|
|Net cash flow from financing||($4,000)|
|Net Increase/Decrease in Cash|
|Cash from beginning of period||$0|
|Total cash at end of period||$22,500|
*Numbers in parenthesis signify a negative figure, to be subtracted from the total
As is the case with all of the financial forms that the Startup Series covers, the accuracy of your cash flow statement depends upon your astute bookkeeping. The rest is a matter of simple addition. If you aren’t confident that you are including all of the necessary variables in your calculations, or you simply would just like a simpler way to make a cash flow statement than by free hand, we suggest that you use a reputable template.
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Cash Flow Statement Template
While it isn’t rocket science, calculating your cash flows is not simple. The process leaves a lot of room for error and mistakes/omissions could prove very consequential for your startup business’s success. It is a good idea to use a free, downloadable or cloud-based template that will ensure that you include all variable expenses that you need and do the calculations for you. Here are the templates that we suggest you take a look at:
- Microsoft Excel— Microsoft has a simple-yet-comprehensive template for startup companies. The Excel cash flow statement template is great if you have Microsoft downloaded on your company computer, and it is also available on the go via Excel Online.
- Google Sheets— Google has a cloud-based, automatically saving spreadsheet that is available to use free of charge. All you need is a Google account.
- QuickBooks— more detailed than the two previously mentioned templates, QuickBooks has created an Excel spreadsheet that will see to it that you don’t forget any expenses/incomes in your cash flow statement.
With a template and the advice offered above, your startup should be in good shape when it comes to creating a cash flow statement. Consider working with a payroll factoring company for if you need funding for your small business.
For more advice on starting a business, check out Factor Finders’ Startup Series.