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Cash Flow Statement

Adapted from content excerpted from the American Express® OPEN Small Business Network


A cash flow statement shows readers of your business plan how much money you will need, when you will need it, and where the money will come from. In general terms, the cash flow statement looks at cash and sources of revenue minus expenses and capital requirements to derive a net cash flow figure. A cash flow statement provides a glimpse of how much money a business has at any given time and when it is likely to need more cash. Analyze the results of the cash flow statement briefly and include this analysis in your business plan. See the glossary of terms in the toolbox.

Tips

  • As with all financial documents, have your cash flow statement prepared or at least reviewed by a reputable accountant.
     
  • Avoid an unrealistically quick ramp-up of sales. Most companies experience a gradual increase in sales, even on a monthly basis. A sudden unexplained spike will stand-out and not look like an honest appraisal of your business.
     
  • Include effects of seasonality and business cycles in all projections. For example, if you are in the gift business, you would need to show the Christmas buying season or the Wedding season. If you're a consultant, you might experience higher sales late in the year when companies are trying to use up their annual funds, or at the beginning of the year after budgets are approved.
     
  • Do not fall in to the common trap of underestimating cash flow needs. This can lead to undercapitalization, which means your funds will prove inadequate for meeting your obligations.
     
  •  Do not include "projections" that include dates and events already in the past. Old projections are more tolerable if your projections were right than wrong.
     
  • Avoid large income or expense categories that are lumped together without backup information about the components.
     
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