The Cash Flow Statement is a tool used to show the movement or flow of cash into and out of a business. A business needs cash in order to pay rent, buy advertising, pay employees, pay for inventory, pay taxes, pay down business loans, pay for utilities, and so on. Without the necessary cash, a business will not survive.
 

A cashflow statement will provide an existing or a potential business with the following information;

• How long will my company's cash last?
• How much cash will the business have at the start of each month?
• How much cash will my business have at the end of each month?
• How much will be spent on business expenses each month?
• How much money will my business need to operate each month?
• How much cash will move into my business each month?
• How much cash will be needed for interest & principal each month?
• Will my business require any bank loans and, if so, when will they be needed?
• and so on ...

Who Uses a Cash Flow Statement?
Existing business owners should use a cashflow statement to forecast their cash "needs" for the upcoming business year. In addition, existing businesses, planning on expanding their operation, will need to know how much cash is required for the expansion and when it will be required.

Aspiring entrepreneurs will need to develop cash flow statements to determine how much cash or financing they will need and when they will need it. Investors generally want to see the expected cash inflows and cash outflows of a proposed business venture for a three year period (ie. one cash flow statement each business year for three years).
 
 

Types of Cash Flow Statements:
A cash flow statement can be organized on a daily, weekly, monthly or quarterly bases. Whether you are currently in business or preparing the statement for a business plan, it is recommended that you use the monthly cash flow statement method. The monthly cash flow statement method shows the forecasted cash coming into your business and the forecasted cash going out of your business each month. Below illustrates an example of a monthly cashflow statement.
 
 
 
 

RED DEERE ELECTRONICS  FORECASTED CASH FLOW STATEMENT  FOR THE MONTH JANUARY 1 - JUNE 30, 200X
CASH INFLOWS:	JAN.	FEB.	MAR.	APR.	MAY	JUNE	TOTAL
Sales from Customers (per month)	$20,000	$15,000	$20,000	$10,000	$15,000	$12,600	$92,600
Loan from Family Member	$ 5,000	$ 0	$ 0	$ 0	$ 0	$ 0	$ 5,000
From Government Grant	$ 0	$ 0	$ 0	$ 0	$ 0	$ 2,000	$ 2,000
Cash at Beginning of Month	$ 8,000	$ 8,250	$ 5,000	$ 5,750	$ 7,800	$ 8,900	$43,700
TOTAL CASH INFLOWS (A)	$33,000	$23,250	$25,000	$15,750	$22,800	$23,500	$143,300
CASH OUTFLOWS:
For Finished Product Purchases	$ 0	$8,000	$7,000	$4,000	$2,500	$3,000	$24,500
For Promotions	$9,000	$5,000	$6,000	$8,000	$5,000	$4,000	$37,000
For Office Salaries Expense	$1,500	$1,500	$1,500	$1,500	$1,500	$1,500	$ 9,000
For Employer Costs (10% of Salary)	$ 150	$ 150	$ 150	$ 150	$ 150	$ 150	$ 900
For Office Supplies	$ 500	$ 0	$ 500	$ 0	$ 500	$ 0	$ 1,500
For Business Cards & Correspondence	$ 200	$ 0	$ 0	$ 0	$ 0	$ 0	$ 200
For Telephone	$ 200	$ 150	$ 150	$ 150	$ 150	$ 150	$ 950
For Business Registration & Fees	$1,000	$ 0	$ 0	$ 0	$ 0	$ 0	$ 1,000
For Rent	$1,000	$1,000	$1,000	$1,000	$1,000	$1,000	$ 6,000
For Utilities	$ 300	$ 300	$ 300	$ 300	$ 300	$ 300	$ 1,800
For Credit Card Service	$ 650	$ 400	$ 900	$ 900	$ 850	$ 700	$ 4,400
For Bank Charges	$ 50	$ 50	$ 50	$ 50	$ 50	$ 50	$ 300
For Miscellaneous	$ 200	$ 200	$ 200	$ 200	$ 200	$ 200	$ 1,200
For Income Taxes	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0
For Withdraws	$1,500	$1,500	$1,500	$1,500	$1,500	$1,500	$ 9,000
For Equipment Purchased	$8,500	$ 0	$ 0	$ 0	$ 0	$ 0	$ 8,500
TOTAL CASH OUTFLOWS (B)	$24,750	$18,250	$19,250	$17,750	$13,700	$12,550	$106,250
CASH EXCESS (Deficit) (A-B)	$8,250	$5,000	$5,750	$-2,000	$9,100	$10,950
FINANCING REQUIRED:
Bank Loan	$ 0	$ 0	$ 0	$10,000	$ 0	$ 0
Less Interest & Principal Payments on loan	$ 0	$ 0	$ 0	$ 200	$ 200	$ 200
NET FINANCING Effects (C)	$ 0	$ 0	$ 0	$ 9,800	$ (200)	$ (200)
ENDING CASH BALANCE (A-B+C)	$8,250	$5,000	$5,750	$ 7,800	$ 8,900	$10,750

 
 
 

THE COMPONENTS OF THE CASH FLOW STATEMENT:
Although many formats exist, most Cash Flow Statement consists of six main components;
 
 
 
 

For a complete illustration of developing a cash flow statement, please click here.  This example takes you through the process and required information needed to develop a cash flow statement  (recommended read).