Weâ€ve talked about the Profit and Loss Statement and the Balance Sheet and now we come to the important cash flow statement.
While a P&L will tell you if you made money, the cash flow statement tells you how much cash you have to operate your business. I will give you the basics of the cash flow and you can find more information at the Accounting Coach website.
First you start off with your balance of cash in the bank. So say you have $1000.00 left over from December as you enter January, that will go to the top of your cash flow. Next you add in any cash payments you have receive (or are projecting to receive). Next you add in payments you receive from credit accounts (accounts receivable). Finally you add in any investment income. This would be any investment you make into the business for example say you put $1000.00 towards a computer out of personal funds.
Then you subtract any payments you make during the month. This will include every cash payment you make such as rent, utilities, operating supplies. You subtotal that amount, and then add any capital purchases, loan principal and any draws you take. Say you take out $10.00 to go get your self lunch; that is taken out of your cash flow because that money is no longer there for company purchases.
You then subtract your outgoing from your incoming cash and you have your ending cash balance. Your ending cash balance from January then becomes your beginning cash balance for February and you start all over again.
Here is a sample Excel spreadsheet showing a cash flow statement.
Cash Flow Statement
Next week we will start detailing what you need in your business plan.