Cash Flow Statement - Free Template and Guide

Understanding and managing cash flow is crucial for keeping your business healthy and growing. The cash flow statement shows how money moves in and out of your company. It provides a clear picture of your financial situation. 

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The cash flow statement also measures how well your business manages its cash position, showing how effectively you generate cash to pay debts and cover operating expenses. Regularly checking this statement allows you to spot potential problems early, helping your business stay strong and ready for future growth.

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By keeping an eye on cash flow, you can ensure you have enough money to meet your needs and take advantage of new opportunities. In this article, you’ll learn about cash flow, methods to prepare a cash flow statement, and access a free cash flow statement template.

How is a cash flow statement organized?

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Cash flow is typically organized into three main sections, each focusing on different aspects of a business’s cash flow:

1. Operating activities: This section shows the cash coming in and going out from the company’s main business activities. It includes money received from customers, payments made to suppliers, employee wages, rent, and other daily expenses. The focus here is on showing how much cash the company’s everyday operations are generating.

2. Investing activities: This part of the cash flow statement tracks the money spent on and received from buying and selling long-term assets, like property, equipment, or investments. It shows how much the company is investing in its future growth.

3. Financing activities: The financing section deals with cash flows related to the company’s funding. This includes money raised from issuing stocks or bonds, repaying loans, or paying dividends to shareholders. It helps you understand how the company is financing its operations and growth, whether through borrowing or raising equity. 

Each of these sections provides insight into different aspects of the company’s financial health.

How to use the cash flow statement 

Cash flow statement gives you a clear view of how money moves in and out of the business, helping you make informed decisions. Here's how to use it effectively

• Use the cash flow statement to assess whether the company has enough cash to meet short-term obligations.

• Determine the actual cash generated by the business, not just the reported profits, to understand real profitability.

• Analyze where the company is investing its money, such as in long-term assets, to evaluate future growth potential.

• Monitor how the company is funding its operations, whether through debt, equity, or internal cash flow, to gauge financial health.

• Use the insights from the cash flow statement to make informed decisions about investments, debt repayments, and dividends.

• Compare the cash flow statements of different companies to assess their financial stability, success, and operational efficiency.

Components of 12 month cash flow statement template 

A 12-month cash flow statement template helps businesses track and manage their finances over a year. Here are the key components:

1. Cash received: Includes income from sales, loan proceeds, and interest income. Allows estimation for anticipated sales or received orders.

2. Cash paid out: Covers expenses like inventory, other purchases, payroll, rent, utilities, taxes, and loan payments. Features a “pre-startup” column for expenses incurred before the cash flow period begins.

3. Net cash flow calculation: Subtract total cash paid out from total cash received. Determines the end-of-month cash position, providing a clear view of financial health.

4. Monthly breakdown: Offers a month-by-month view, highlighting periods of surplus or shortfall. Aids in planning and decision-making for upcoming months.

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Here’s an example of a cash flow statement:

Get Ramp's cash flow statement template here to streamline your financial tracking. Download now!

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Methods to create a cash flow statement

Businesses generally use one of two methods to generate their cash flow statement for operating activities. Both methods, when applied correctly, should yield the same ending balance.

Indirect cash flow method

The indirect method starts with the company's net income and adjusts for non-cash expenses, such as depreciation or amortization. This approach involves calculating cash flow from operating activities by considering changes in working capital and non-cash items recorded during the period.

Direct cash flow method

The direct method involves itemizing all cash transactions, including expenses and inflows, based on receipts and invoices. This method provides a detailed view of where cash is coming from and where it is going, which can be more useful for planning and analysis. However, it can be more time-consuming to compile.

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Both methods aim to provide an accurate picture of a company's cash flow, helping businesses manage their finances effectively.

Creating a 12 month cash flow template

Creating a cash flow statement is a straightforward process that provides a clear picture of your company’s financial health over a specific period. The complexity can vary based on the size and intricacies of your business. Here's how to prepare one in six steps:

Step 1: Determine your starting balance

Select the starting date for your cash flow period and note the amount of cash your company had on hand at that date. This starting balance is the initial cash position from which changes will be measured.

Step 2: Calculate cash flow from operating activities

Begin with the first section of your cash flow statement. Use the direct or indirect method to calculate cash flow from operating activities. Subtract expenses such as rent, inventory, and insurance, and add revenues recorded during the period. For instance, if you provided services in January but received payment in February, record the revenue in February.

Step 3: Calculate cash flow from investing activities

Next, record any transactions involving the acquisition or sale of assets, excluding those financed by debt or equity. Include activities such as purchasing real estate, buying patents, or selling equipment under cash flow from investing activities.

Step 4: Calculate cash flow from financing activities

Include transactions related to debt and equity in this section. Record any issuance of equity, taking on debt, or repaying loans that occurred during the cash flow statement period.

Step 5: Determine your ending balance

Sum the cash flows from operating, investing, and financing activities. Add these amounts (including negative figures) to your starting balance to find your ending cash balance for the reporting period.

Step 6: Calculate net cash flows

Subtract your starting balance from the ending balance to determine your net cash flows. Positive net cash flows indicate profitability, while negative net cash flows suggest that the company is losing money.

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By following these steps, you’ll create a comprehensive cash flow statement that accurately reflects your company’s financial activity over the selected period. This document is crucial for assessing your business’s cash position and making informed financial decisions.

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Download Ramp’s cash flow template here, and take control of your business finances.