Cash flow statement definition
Cash flow statement is the difference between money in and money out of your business. You get this data from listing all your movements of your bank accounts and adding contextual details from your accounting.
Cash flow reports are crucial for any business to do well. Cash forecasts, debt capacity, hiring timelines, and investment plans depend on it. Even banks will require your cash flow statement for reassurance that your business is able to pay back loans or fund its operating expenses.
That’s where the difference between your profit and loss statement, prepared by your accountant, and the cash flow statement comes in and why it’s crucial to monitor both. Even a perfectly profitable company can be forced into technical insolvency if not prepared to, for example, pay that large supplier invoice.
Direct method vs. indirect method for cash flow statements
We recommend business owners to choose the direct method for cash flow statements — by looking at actual bank statements, instead of the indirect method — which deducts cash flows from the balance sheet and income statement.
The direct cash flow method it much easier to read and more powerful to manage your finances. This however, can come at the cost of needing more effort if not using a cash flow management software that reconciles your bank transactions automatically.
Don’t yet know if you have all data for the direct method ready? Our templates will give you both options — direct and indirect methods for managing your cash flows. You can download it below
5 steps to set up your cash flow statement using direct method
Creating your own cash flow statement in Excel or Google Sheets can be extremely tiring and error prone. Where do I get the data from for the cash flow report? Which line items do I have to time adjust? Which items need to be recategorized? How to handle vouchers and returns? What about cross-currency items? How to estimate the forecast? Which cash flow categories should I chose? If you’re wondering what is the right structure and what to take care of, we’ve prepared a template and checklist for you. That way your cash flow report becomes bullet proof.
Export all your bank statements for the period(s) that you want to set up your cash flow reports for. At least, you should have 1 month of all your incoming and outgoing cash flows.
Optionally, it also helps to have the invoices for each transaction at hand. You can find these, usually, in your accounting software or email folders. We’ll later touch on how to automate the invoice reconciliation process for you.
Step 1: Enter your opening balance
Use the Excel or Google Sheets template to determine the first month you are tracking and / or projecting. Then, enter the opening balance — your total cash holding across your bank accounts of the date you entered.
For all other months, your opening balance will be the closing balance of the previous month.
Step 2: List all cash coming in
Next you need to list all actual (or expected) incoming cash across categories. You should at least separate between a few crucial categories — basically every dollar that flows into your business bank accounts. Our spreadsheet template already took care proposing a few categories and structuring them for you.
Step 3: List all cash flowing out
Now the flipside. List all actual (or expected) outflowing cash across categories. You should at least separate between the top level of these categories.
- Payroll, services, and fees
- Rent and utilities
- Other, Financing and Taxes
Basically, every dollar that flows out of business bank accounts. Our spreadsheet template already took care proposing and structuring 21 possible expense categories with enough room to set up categories that reflect your businesses the best. You can download it below
Step 4: Subtract
Nearly there, now subtract the monthly cash-outs from your monthly income — the result is you cash left at the end of the month. This is also the beginning balance for the next month, for which this process then begins again.
Step 5: Repeat for your upcoming months
Until now you just modelled your cash flow statements for the recent months. Next iterate this process for your expected cash transactions over the coming months. When doing so, consider following points:
- You will have many figures readily available from your business plan
- Do not forget to include your hiring plans and potentials leavers
- Always split out upfront invoices over the time the cash is actually collected. Same goes with annual contracts that are paid monthly
- Use your accounting system to determine already planned bill payments.
Your cash flow forecast is a living document, with your intermediate upcoming months more accurate than the others. If you’re a startup, you should plan your cash flow at least until your end of cash event. If you’re a stable running small business, you should plan your cash flow at least 12 months ahead.
Cash Flow Excel vs. Cash Flow Software
Building and maintaining a spreadsheet is time-consuming. It’s also expensive. Instead, consider automating your cash flow reporting by using real time dashboards as Airbank provides it. Airbank gives you the freedom to work with data in ways you or your team can access easily.
All the tiring cash flow report structuring is already pre-configured and you don’t have to go through the laborious bank statement import. Instead, just connect your bank account and have all your cash categorized in seconds. For your cash forecasting, you can connect your accounting to pull in planned payments. If you want to recategorize, or split up a planned bill, you can do so easily. And all tax payments are allocated already. And if you want to take your cash flow report offline — a spreadsheet export will provide the formatted file for you.
Download your copy
You can download your XLSX copy of the cash flow statement template by signing up to the Airbank waitlist today. Airbank’s cash flow manager comes for free and is a great way to get started with cash flow management instead of getting lost in error-prone MS Exel files. Sign up for your cash flow statement template today: