How To Do A Statement Of Cash Flow

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Comparing “Net Income” and “Cash Flow” is like comparing “Apples” to “Oranges”. These are two different concepts. You can have a positive cash flow and still lose money. You might be experiencing a negative cash flow but are making money and profits.

Sometimes your banker or investor will ask you to prepare a basic business plan and a Pro-Forma Cash Flow. There’s a reason they want to see this Pro-Forma statement. They want to know if you have the ability to generate cash in your business to pay back their loan and/or return on their investment. Except for the desire that you are a viable company that will be financially stable over the term of the loan or investment, they probably don’t care if you make money or not. Now, don’t get me wrong .. they will look at your Pro-Forma Income Statements .. but, it will become 4th in line (from what I have seen in my line of work). This is generally what they are interested in knowing..

* Collateral you now have (Personal Assets and Net Worth)
* Ability to repay a loan in the future (Pro-Forma Cash Flow)
* Collateral you will have in the future (Pro-Forma Balance Sheet)
* Assurance you can make money and remain in business to repay their loan (Pro-Forma Income Statement and Business Plan)

This is why it is important to convert your “Net Income” (Apples) and “Cash Flow” (Oranges) into it’s own level playing field .. so you can compare i.e. Bananas to Bananas. The Statement of Cash Flows will do this for you. This statement bridges the gap between the two concepts because if done correctly, it will show you how and where your cash flow is coming from or going to, and you will have a better handle on if you are making money or not.

But .. How To Do A Statement Of Cash Flows?

Good Question. I thought I would try one common way – which is to do a Google Search:

Hmmm .. okay .. 13,300,000 search results. Let’s start with the top two – one by Google’s Search result and a Sponsored Link that was paid to appear when you asked that very question

Hmmm .. Okay .. you start with the sponsored link and find out that this is a SCAM – there is no information here, just ads. Please don’t click on them and support them! What a waste of cyberspace, eh?

Hmm .. this book looks interesting.. although, does that help you at all? 1168 pages like this. It sort of looks like something .. but do you really have time to click ‘Next Page’ for 1168 pages?


First of all .. Cash “Flow” means how it ‘flows’ from one point in time to another point in time. AT MINIMUM you need two points in time to calculate this. Two sets of financial statements. Perhaps .. Last year’s financial statement and the most current monthly financial statement. If you want comparatives for two period of time, you need THREE points in time or 3 years of financial statements. Try to think of a Statement of Cash Flow in the following ways:


This includes cash spent to run your business. You receive cash from cash sales, accounts receivable, maybe interest and investment income. You pay cash for wages to employees, for payment of purchases to suppliers, for interest on repayment of loans, and other cash payouts for general expenses used in your business.

Cash spent on Operating Activities is usually broken down into these sections:

* Cash received from customers
* Cash paid to suppliers and employees
* Income taxes paid
* Interest, dividends, and investment income received
* Management fees received
* Management fees paid


This would include two parts ..

(1) Investing Activities – This includes cash used to buy capital assets, or cash received from the sale for assets, cash used to invest in marketable securities, cash loaned to private individuals, and other non-operating expenses.

(2) Financing Activities – This includes cash used to repay the prinicipal of lender’s loans, your own drawings or advances to self or related parties or related companies

Cash spent on Non-Operating Activities (for each individual calculation) tends to be a calculation directly from the Balance Sheet. For instance, to calculate the difference between a LIABILITY type of account, you take THIS YEAR minus LAST YEAR to calculate. Example: Loan this year owing $10,000 Last year owing $20000 .. You calculate (10,000-20,000 = minus-10,000) Minus $10,000 – you paid out of your cash $10,000 principle to reduce the loan.

I can go on and on in trying to do a cash flow … but, maybe it would be best if you looked at my template at this point in time.

I am currently using Microsoft Excel for Windows 95, version 7.0 as my preferred spreadsheet program and version. You can change the text of anything I use to suit your own needs .. it is just a guideline. If you feel this has helped you, feel free to glorify my greatness and usefulness in this world (or join HART’s Coffee Club – see sidebar)


Take care.


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