A cash flow statement is one of the three most important financial statements for any business, and provides a detailed picture of what happened to a business’s cash over a particular period of time. Detailed with numbers. If a picture is worth a thousand words, then a cash flow statement template is worth a thousand pictures of people handing cash to each other.
Cash flow statements reflect the performance of an organization in terms of how much cash is flowing into and out of the business. They are typically broken into three sections:
* Operating activities
* Investing activities
* Financing activities
Operating activities include all cash revenues and expenses that are generated by the business as a result of delivering goods or services. Investing activities include all cash from buying or selling assets such as physical property like real estate or vehicles, as well as non-physical property like patents. (Only cash investments are recorded here, not investments made using debt.) Financing activities include cash from debt and equity.
A cash flow statement is one of the "Big Three" financial statements for businesses, along with the income statement and the balance sheet. While income statements show you how much money you're making, and balance sheets show you how much you have, cash flow statements explain where the money is coming from, where it's going, and how much actual cash is available.
A simple way to think of it is this: If you're out for dinner with a well-dressed businessman, an income statement will show you that he receives a high salary, a balance sheet will show you that he's wealthy and owns lots of cool stuff, and a cash flow statement will show you that he has spent $3000 on sushi this year but also doesn't have any money on him and needs you to cover dinner.
More specifically, for businesses, a cash flow statement tells you a lot about how a company's operations are running and how financially healthy it is. Liquidity (available cash) is an important metric for any company to track, which is why it can be helpful to have a cash flow statement template like this one which breaks down operating, investing, and financing activities, to make sure you understand where your company's cash is going and how much you have available.
Cash flow statements show actual cash movement, as opposed to accrual accounting methods which may amortize expenses over a longer term. So where accrual accounting may convince you that $200 per year on hamburgers is a reasonable expense, a $$$$ cash flow analysis template may suggest that spending $10,000 today on a lifetime membership to Bob's Burger Barn is a potentially unwise expense. (Especially because you might not make it another half-century; ask your local actuary for details.)
82% of small businesses that fail can blame poor cash flow management. Technically, 100% of failed small businesses could blame poor cash flow management, but 82% of them would be correct.
Using a cash flow forecast template to drive your budget isn't entirely different from farmers using a weather forecast to plan irrigation of their crops. In both cases, you're hoping things will keep growing, but making sure that you have the capability to make it rain if necessary.
This cash flow statement template is broken down into three main sections: Operating Activities, Investing Activities, and Financing Activities. Each section has been pre-populated with typical line items which are relevant for a public corporation, such as Depreciation, Net Acquisitions, and Issuance of Stock. However, every business is different. This is a flexible template where individual line item categories can and should be edited to suit the needs of your particular business.
Once you have modified the categories to suit your business, simply enter the expenditure for each category in its row. The first worksheet offers a yearly cash flow template, while the second worksheet provides a monthly template. To add more years or months to your spreadsheet, simply copy the final column of the statement to the right and edit as needed.
Each of the three main sections (Operations, Investments, Financing) has a subtotal which will automatically calculate net cash flow for that group of activities. The Net Cash Flow combines these three subtotals to find the overall Net Cash Flow of your business.
Free Cash Flow subtracts your Capital Expenditures from your Operating Activities, to provide another view of how much cash your business potentially has available.
Oh, you probably wanted a more thorough explanation. Well, as mentioned above, a cash flow statement is one of the three essential financial statements for any business. An income statement and balance sheet are both very important, but neither specifically summarizes how cash flows in and out of your business. A cash flow statement does, and that gives you important information about the financial health of your business that might otherwise go unseen.
The fact is, income statements and balance sheets don't tell the whole story. When your business suddenly needs cash money to expand, pointing to a high annual income or an office full of expensive systems doesn't pay the bills. A cash flow statement gives you insight into the liquidity of your company so you can tell if you have enough available cash to do what you actually need to do.
Filling out a cash flow analysis template for your business isn't just of interest to you. Creditors and potential investors are both very interested in the cash flow of your business, and would probably like to see some numbers. But of course as someone who wants your business to succeed, you should want to see those numbers too.
Businesses looking for potential investors
Potential investors are exceedingly likely to want to see a cash flow analysis to determine whether your business is standing on sound financial footing before handing you a bag of money. Given the number of businesses that fail each year due to poor cash flow management, savvy investors (i.e. the ones with lots of money) tend to want a cash flow statement before deciding whether to invest.
Businesses with creditors
Creditors tend to be very interested in knowing how much cash your company has available to pay down its debts while still covering operating expenses. "But we have a high annual income on paper…" doesn't cut it.
Businesses that would like to still be in business next year
Just tracking your income and expense sheets isn't good enough. Knowing that you'll have money on hand when you need it is why a cash flow projection template is essential for any business.