Stress-Free Financial Statement Guide: Statement of Cash Flows

Having a good understanding of your startup or new business’ financial statements is vital to attracting investors, keeping your company up and running, and driving your growth strategy. The Statement of Cash Flows shows how the changes in your balance sheet accounts and your P&L accounts impact cash balance. The statement refers to how your company is producing cash (inflow) and how the company is consuming cash (outflow), and is organized into four sections to show how cash is produced and consumed within the company: operating activities, investing activities, financing activities, and supplemental information

Operating Activities

Operating activities relate to your daily activities such as cash received from sales, cash paid for cost of production such as raw materials, inventory and freight and other operating expenses such as advertising and salaries.

Investing Activities

Investing activities will include cash outflows due to large purchases that would be included in your fixed assets such as land, building, and equipment or payment on loans made with vendors. It will also include cash inflows due to sale of fixed assets or payments received from customers who have a loan, and dividends received.

Supplemental Information

The final section, supplemental information, relates to non-cash activities. This includes transactions such as an exchange of a non-cash asset for another non-cash asset or converting debt to equity.

Managing Cash is Essential to the Success of Your Business

Being in budget does not equate with having cash. In the real world, your monthly budget may be in balance but expected income may be received later than expenses that are due. Therefore, in the short-term you may have a cash flow shortage.

On the flip side, being profitable does not equate with having cash, especially in the startup phase. Many startups will reinvest money back into the business through R&D or fixed assets during their growth phase that may strap the company’s cash flow, even if the bottom line shows something different.

Startups and Entrepreneurs Services
View all Blog Posts

Our firm provides this information for general educational guidance only and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Podcasts posted by Anders are not intended to be used and cannot be used by any individual or business, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose. Please note that some content may be generated using artificial intelligence and is intended for educational and informational purposes only. In no way does listening, reading, emailing or interacting on social media with our content establish a professional relationship.