There are three types of financial statements for your business: income statement, balance sheet and statement of cash flows.
These financial statements help you see the health of your business finances and even the health of your business.
Let’s learn how to read each of these statements: income statement, balance sheet, statement of cash flows.
Statement of Cash Flows
Plain and simple, the statement of cash flows literally shows you how cash flows through your business.
But it also includes items that aren’t usually considered cash. It also doesn’t read as simply as the other 2 statements.
This statement is also similar to the balance sheet in that it is always created on a year to date basis and a new one is created starting on January 1.
If you don’t normally have a statement of cash flow for your business, don’t worry, you aren’t missing much. But you should at least have a plan in place to help you bring in a profit.
What does a statement of cash flow look like?
Here’s an example of a simple statement of cash flow:
Here’s an example of a more complicated statement of cash flow:
Reading a statement of cash flows
There are 3 sections of the statement of cash flows: operating activities, investing activities and financing activities.
Operating activities
These are the activities that happen because of operating the business. But remember that this is the opposite of how you normally treat cash.
You always start with the net income on this statement. It doesn’t matter what else has happened in your business, you always start with the net income.
Then the items that would normally decrease cash, you are adding back in and the items that would normally increase cash, you are subtracting out.
You are also including items that you wouldn’t even normally consider cash related, like depreciation.
Investing Activities
This section acts normally, meaning anything that would normally decrease cash is going to be subtracted, and anything that increases cash is going to be added.
Don’t blame me for this statement being weird AF, I didn’t create it. I’m just showing you the rules.
This section includes the activities that include investments: like buying equipment and receiving interest.
Financing Activities
The section also acts normally, so anything that would decrease cash is going to be subtracted and anything that increases cash is going to be added.
Financing activities include things like getting loans and adding more equity to the business.
The statement of cash flows
Like I said this isn’t a statement you need to run out and create if it’s not something you’ve been using before in your business. It’s not as important as the income statement.
It just shows how cash has moved through your business throughout the year to date period.
As an online business owner, you’ll be much better off just putting a profit plan in place and paying attention to your income statement.
