What is a Cash Flow Statement and Why Do You Need One?

As you likely know, cash is a big factor in the current and future business plans for all business owners. From startup and everyday operating costs to growth and expansion costs, cash is the lifeblood of a business. That’s why it’s imperative that you monitor what is commonly referred to as “cash flow,” but how?

First… what is cash flow?

To put it simply, cash flow is the journey of financial assets into and out of your business. Things such as the sale of items and services, lines of credit, loans, or the sale of any assets can all be considered an “inflow” of cash. Business expenditures (payroll, utilities, mortgage or rental fees), business purchases (equipment, supplies), or loan repayments can all be considered “outflow.” Sounds easy enough, right? While the concept is one that’s fairly straightforward, how to make sense of it and create short and long-term strategies form it can often seem daunting. By preparing a cash flow statement, or cash flow analysis, you will be able to keep tabs on your finances and effectively plan for the next quarter or year to come.

Creating a Cash Flow Statement

One of the primary reasons to create a cash flow statement is to gain insight about your spending and expenses by documenting and keeping a history of cash flow on a monthly or quarterly basis. To do this, you will need to include cash flow analysis regarding the following information:

  • Cash Flow from Operations: This part of a cash flow analysis comes from the regular ebb and flow of your business and focuses on the net income (revenue minus the costs of goods, expenses, taxes, etc.). Also included in this portion of your cash flow analysis should be non-cash expenses such as depreciation, adjustments made for losses or gains, and changes in all of your current assets and liabilities. Consider operations cash flow as the money that is generated internally.


  • Cash Flow from Financing: The financial portion of your cash flow statement includes items like loan or credit line obligations (repayment from borrowing money), issuing or buying back stock, and any cash dividends. Eventually, your cash flow analysis will help you determine the impact (positive or negative) of your financial actions. This will help you make more informed decisions in the months, quarters, and years to come.


  • Cash Flow from Investing: In many ways, your business is one giant investment, but in this particular case, we’re referring to non-current assets. These are assets that will add value to your company over time, but during the current cash flow statement, their value can’t be fully realized. When you think about what to include in the investment cash flow portion of your statement, consider things like marketing and brand recognition expenses, purchases of equipment or intellectual property, or any goodwill efforts you’ve made.


By including the three breakdowns above, you’ll be able to create a complete picture of your financial standings. Regular cash flow analysis is a vital part of staying in touch with your business and determining your next course of action.

Are you a small business that is looking to outsource your accounting? If you need help managing any aspect of your business’s or nonprofit’s finances, we want to hear from you. Call us at (301) 913-0008 or email info@goldingroup.biz to make an appointment.