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Cash flow statement and cash flow analysis: A primer for businesses

Cash flow statement and cash flow analysis: A primer for businesses

Keeping tabs on money-in versus money-out is the key to understanding the financial health of your business. As your business grows, however, it can become more complicated and difficult to track. Here is an overview of what you should be measuring and how to keep it simple.


First, understand the different types of cash flow

Together with your income statement and balance sheet, your cash flow statement is one of the key financial statements of your business. There are three main types of cash flow and your statement can be kept clear and simple by grouping your activities accordingly.

  • Operating activities: this is cash inflow and outflow resulting from everyday operations, such as collection of cash from sales and ongoing expense payments.
  • Investment activities: this is cash flow resulting from the sale or purchase of your non-current assets. These are long-term assets, such as plants or equipment that have been owned by the business for more than 12 months.
  • Financing activities: this refers to financing activity that impacts the long-term financial position of the business, such as mortgage repayments or dividend payments.

Your statement of cash flow can be kept clear and simple by grouping your activities under these three areas.

Why is cash flow analysis important?

Cash flow analysis is all about finding patterns as you develop and prepare your cash flow statement. From there, you can forecast how much money is expected to flow in and out of the business – typically over the next 12 months, but the process can also cover shorter periods.

It can help you with important financial decisions such as hiring staff, purchasing equipment and securing loans. Cash flow analysis is essential for growing your business and should include:

  • Estimated sales: taking into account seasonal patterns and special events, such as trade shows, that are likely to have an impact.
  • Payment schedules: if you sell on credit rather than secure full up-front payment, you also need to factor in the impact this will have.
  • Estimated costs: you can use your forecasted sales levels to help estimate the amount of stock you will have to order in, along with staff costs and other overheads.

Putting your statement together

To help businesses develop their own cash flow statement and forecast, Business Victoria provides an Excel-format business cash flow template.

As your business grows, you will probably need to migrate from spreadsheets to accounting tools such as MYOB, QuickBooks or Xero, or consider hiring a professional. However you choose to do it, good cash flow management goes hand-in-hand with good business decisions.

Keeping track is just the first step. Find out how to keep your business in the black.

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