As cliche as “cash is the lifeblood of every business” seem, the importance of cash cannot be overemphasized. Run out of cash, and you would literally drown—you can’t pay the bills of your business or staff salaries. An easy way to do a proper analysis of cash is through the Cash Flow Statement.

Cash flow is the net amount of money moving in and out of your business. It shows where cash comes from and how it’s being used. A positive cash flow means your cash inflows are greater than your cash outflows. If the cash flow is negative, your business might not have enough cash to finance its operations. This could mean the business is financing operations by borrowing.

A cash flow statement is divided into net cash flow (cash inflow – cash outflow) from three main activities;

Operating activities: This include revenue and operating expenses. They are only included if the cash payment occurred during the account period the statement reports on.

Investing activities: This include purchasing or selling property, a manufacturing plant, or equipment. They might also include the acquisition of a business.

Financing activities: This include issuing shares, selling or repurchasing stock, and paying or receiving debt and dividends.

To determine if there is a cash surplus or deficit, compare the beginning cash balance with the net cash flow from the aforementioned three activities for the period.

We encourage you to prepare a cash flow statement for your business today and beyond this, apply it in effective cash management and planning! We have provided a cash flow statement template to serve as a guide, please feel free to download using the link below ………………