How To Prepare A Cash Flow Statement

A cash flow statement is one of the most important tools for understanding the financial health of your business. It shows exactly how money is moving in and out, helping you spot trends, prepare for challenges, and make informed decisions.

Whether you’re a new business owner or simply looking to take more control over your finances, learning how to prepare a cash flow statement is a great place to start.

What is a Cash Flow Statement?

A cash flow statement tracks how much money enters and leaves your business during a specific time period. It breaks your cash activity into three main sections:

Operating Activities: Cash generated from day-to-day business operations (e.g., sales, expenses, supplier payments).

Investing Activities: Cash spent or earned through buying or selling long-term assets (e.g., equipment, property).

Financing Activities: Cash from loans, investors, or owners’ equity contributions and repayments.

Together, these sections give a clear picture of whether your business is generating or using cash, and why.

Step 1: Gather Your Financial Data

Start by collecting your financial records for the period you want to report on. You’ll need:

• Income statements
• Balance sheets
• Bank statements
• Records of major asset purchases or financing activities

Accurate bookkeeping plays a big role here, so make sure your records are up to date and organized.

Step 2: Calculate Cash from Operating Activities

This section typically starts with your net income and then adjusts for non-cash items and changes in working capital (like accounts receivable, accounts payable, and inventory).

A simplified formula might look like:

Net Income

• Depreciation/Amortization
  +/- Changes in working capital
  = Net Cash from Operating Activities

If you’re using accounting software, this process may be automated, but it’s still important to understand what’s happening behind the scenes.

Step 3: Add Investing and Financing Activities

For the investing section, list any major purchases or sales of assets (like buying equipment or selling property).

For the financing section, include things like loan proceeds, loan repayments, or funds contributed by owners.

Be sure to note whether the cash is coming in (+) or going out (−).

Step 4: Combine the Totals

Add the cash totals from all three sections to calculate your net increase or decrease in cash. This figure should match the change in your cash balance between the beginning and end of the period.

Review the numbers to ensure everything adds up — even small errors can make a big difference.

Why Cash Flow Statements Matter

Understanding how to prepare a cash flow statement gives you more than just a report — it gives you clarity. You’ll know if you have enough cash to cover expenses, plan for growth, or weather a slower season.

It’s also one of the key reports lenders, investors, and accountants use to evaluate your business.

Get Help When You Need It

Preparing a cash flow statement doesn’t have to be overwhelming, and you don’t have to do it alone. At Evolution Family, we help business owners just like you stay in control of their finances with reliable, personalized accounting support.

Contact us to learn how we can help you track, manage, and understand your business’s cash flow with confidence.