Sample Cash Flow Statement

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To prepare a cash flow statement, you'll use many of the same figures you use for a profit and loss forecast. The main difference is that you'll include all cash inflows and outflows, not just sales revenue and business expenses. For example, you'll include loans, loan payments, transfers of personal money into and out of the business, taxes, and other money that isn't earned or spent as part of your core business operation.

Also, in your cash flow statement, you'll record costs in the month that you expect to incur them, rather than spreading annual amounts equally over 12 months. This is important because it's easy to show a monthly profit on a spreadsheet but go belly up from lack of cash if you can't pay your bills on time. For example, if you have a $4,000 workers' comp premium and a $3,000 liability insurance premium due each July 1, you'll need to find a way to come up with real dollars then, not later. Plus, if you make sales to some customers on credit (for example, a painter who invoices customers after the job is done rather requiring full payment up front), your cash flow analysis should account for the fact that you won't get paid right away, as well as the fact that you might not collect some of the credit sales at all.

Here are the steps you need to follow to create a cash flow statement like the sample below. Do one month at a time.

Step 1. Enter Your Beginning Balance

For the first month, start your projection with the actual amount of cash your business will have in your bank account.

Step 2. Estimate Cash Coming In

Fill in all amounts you expect to take in during the month. Include sales revenue that will actually be in hand, collections of previous sales made on credit, transfers of personal money into the business, and any loans coming into the business—basically, every dollar that will flow into your business checking account.

Step 3. Estimate Cash Going Out

Enter all your projected payments for the month. Include your variable costs (cost of goods), your fixed costs such as rent, tax payments, and any loan payments. Add them to get your monthly total.

Step 4. Subtract Outlays From Income

Finally, subtract your total monthly cash-outs from your total monthly income; the result will be your cash left at the end of the month. That figure is also your beginning cash balance at the start of the next month. Copy this amount to the top of the next month's column and go through the whole process over again.

EXAMPLE: On January 2 (as a New Year's resolution), Emme starts work on a cash flow projection for the next 12 months. She starts by putting the $5,000 she has in her business bank account in the "Cash at Start of Month" column for January. In her "Cash Coming In" section, she includes her cash sales (which are about 75% of her sales) and her credit sales (about 25% of her sales) on separate lines. She adds in all of the cash sales, but only 80% of her credit sales, because some percentage of her credit customers always take longer than 30 days to pay. In the "Cash Going Out" section, Emme includes her variable and fixed costs, putting the annual insurance premium she's about to pay in the January column rather than spreading it over 12 months.

Emme's Cash Flow Analysis (part 1)
  January February March April May June July
Cash at Start of Month 5,000 3,340 3,080 2,220 1,960 1,700 –740
Cash Coming In
Sales Paid (75%) 7,500 7,500 7,500 7,500 7,500 6,000 6,000
Collections of Credit Sales 2,000 2,000 2,000 2,000 2,000 1,600 1,600
Loans & transfers 0 0 0 0 0 0 0
Total Cash In 9,500 9,500 9,500 9,500 9,500 7,600 7,600
Cash Going Out
Inventory 4,500 4,500 4,500 4,500 4,500 4,500 4,500
Rent 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Wages 4,000 4,000 4,000 4,000 4,000 4,000 4,000
Utilities 100 100 100 100 100 100 100
Phone 30 30 30 30 30 30 30
Insurance 1,200 0 0 0 0 0 0
Ads 200 0 0 0 0 280 0
Accounting 130 130 130 130 130 130 130
Miscellaneous 0 0 600 0 0 0 0
Loan payments 0 0 0 0 0 0 0
Taxes
Total Cash Out 11,160 9,760 10,360 9,760 9,760 10,040 9,760
Cash at End of Month 3,340 3,080 2,220 1,960 1,700 -740 -2,900

Emme's Cash Flow Analysis (part 2)
  August September October November December
Cash at Start of Month –2,900 –6,410 –4,770 –5,030 –5,290
Cash Coming In
Sales Paid (75%) 5,250 9,000 7,500 7,500 11,250
Collections of Credit Sales 1,400 2,400 2,000 2,000 3,000
Loans & transfers 0 0 0 0 0
Total Cash In 6,650 11,400 9,500 9,500 14,250
Cash Going Out
Inventory 4,500 4,500 4,500 4,500 4,500
Rent 4,000 4,000 4,000 4,000 4,000
Utilities 100 100 100 100 100
Phone 30 30 30 30 30
Insurance 0 0 0 0 0
Ads 0 0 0 0 0
Accounting 130 130 130 130 130
Miscellaneous 400 0 0 0 200
Loan payments 0 0 0 0 0
Taxes
Total Cash Out 10,160 9,760 9,760 9,760 9,960
Cash at End of Month -6,410 -4,770 -5,030 -5,290 -1,000


It's easy to see why a cash flow analysis can give you a more realistic picture of whether your business will have the money to pay its expenses—in other words, sufficient cash flow to stay afloat—than a P&L forecast. This is especially true for companies that make sales on credit, because typically some credit sales are not paid within the expected 30 days (and others not at all). A P&L forecast does not account for late or missing payments, and this is why it's so important to do a cash flow analysis as well.

EXAMPLE: After filling in her cash flow projection, Emme realizes that her account will go significantly negative in the slow summer months. She may not even be back in the black in December, her biggest sales month, because she has estimated that about $500 per month in payments on credit sales will be late. (Though if she eventually gets caught up collecting her accounts receivable, she will be profitable for the year.) But given that some customers will always pay late, she knows that if she can't reduce her costs in some way, she will need some cash to tide herself over in some months, especially during the summer. Because she has already cut her own pay in half and trimmed other expenses to the bone, she'll have to bring in money from extra sales, provide extra services, or get a loan from family, friends, or a bank line of credit.

Despite what your P&L forecast says about your company being profitable or breaking even over the next six to 12 months, if your cash flow is projected to go negative, it means you're not going to be able to pay your bills when they become due, and you'll have to bring in more income or borrow some cash to cover the shortfalls.

EXAMPLE: Going back to her spreadsheet, Emme sees that a loan of $8,000 would cover the shortfall, even accounting for making a small loan payment. After December sales are in, she'd still have a balance of $5,000.

But Emme also sees that even if she gets a loan, it would let her business survive only about 12 to 18 months of lower sales before again going cash-negative the next summer. In short, she needs to make sure that she can boost her sales back to her previous levels within the next 12 to 18 months, or she risks going in the red again before paying back the loan.

Emme's Cash Flow Analysis With $8,000 Loan (part 1)
  January February March April May June July
Cash at Start of Month 5,000 11,180 10,760 9,740 9,320 8,900 6,300
Cash Coming In
Sales Paid (75%) 7,500 7,500 7,500 7,500 7,500 6,000 6,000
Collections of Credit Sales 2,000 2,000 2,000 2,000 2,000 1,600 1,600
Loans & Transfers 8,000 0 0 0 0 0 0
Total Cash In 17,500 9,500 9,500 9,500 9,500 7,600 7,600
Cash Going Out
Inventory 4,500 4,500 4,500 4,500 4,500 4,500 4,500
Rent 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Wages 4,000 4,000 4,000 4,000 4,000 4,000 4,000
Utilities 100 100 100 100 100 100 100
Phone 30 30 30 30 30 30 30
Insurance 1,200 0 0 0 0 0 0
Advertising 200 0 0 0 0 280 0
Accounting 130 130 130 130 130 130 130
Miscellaneous 0 0 600 0 0 0 0
Loan payments 160 160 160 160 160 160 160
Total Cash Out 11,320 9,920 10,520 9,920 9,920 10,200 9,920
Cash at End of Month 11,180 10,760 9,740 9,320 8,900 6,300 3,980

Emme's Cash Flow Analysis With $8,000 Loan (part 2)
  August September October November December
Cash at Start of Month 3,980 310 1,790 1,370 950
Cash Coming In
Loans & Transfers 0 0 0 0 0
Total Cash In 6,650 11,400 9,500 9,500 14,250
Cash Going Out
Inventory 4,500 4,500 4,500 4,500 4,500
Rent 1,000 1,000 1,000 1,000 1,000
Wages 4,000 4,000 4,000 4,000 4,000
Utilities 100 100 100 100 100
Phone 30 30 30 30 30
Insurance 0 0 0 0 0
Advertising 0 0 0 0 0
Accounting 130 130 130 130 130
Miscellaneous 400 0 0 0 200
Loan payments 160 160 160 160 160
Total Cash Out 10,320 9,920 9,920 9,920 10,120
Cash at End of Month 310 1,790 1,370 950 5,080

Emme sets about thinking how to come up with the extra $8,000. Her first thought is having a one-time sale. But even at her usual 55% profit margin, she would need to sell an extra $14,500 in clothes to generate that much gross profit. And discounting prices for a big sale would lower her profit margin, meaning she'd have to sell more. (If she sold her inventory at a 20% discount, her profit margin would be less than 45%, and she'd need to bring in more than $18,000 in additional sales.)

Realizing that she doesn't have a realistic chance of selling that much inventory, she goes looking for a loan. When family, friends, and the bank turn her down, her last resort is to take out a $8,000 home equity line of credit. This will allow her to dip into it as needed to tide her over. In the meantime, she gets to work on a clever marketing plan to boost sales until better times are here.

Now it's time for the next step, which is to focus on your current cash position with an eye to improving it. If cash is flowing out of your business significantly faster than it's coming in, you need to examine three aspects of your cash flow:

  • how and when cash comes into your business
  • how and when it goes out again, and
  • where it gets tied up in the meantime (in inventory and equipment, for example).

To fix your cash flow, you need more money coming into your business (increase sales, collect past-due accounts receivable), less money going out of your business (reduce costs of goods and labor), and less money tied up in your business (reduce inventory and leased equipment). Many of these things will raise your profit margin. For more information, see our article on profit and loss forecast and gross profit margin.

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