How to Create a Startup Cash Flow Statement

Capital is what drives businesses forward. Whether you’re looking to implement new growth strategies or prove to investors that funding is being deployed responsibly, you should have a clear idea of where your cash is coming from and where it is going. 

Companies are required to create three financial reports quarterly and annually: a cash flow statement, a profit and loss (P&L) statement, and a balance sheet. A cash flow statement reports how cash, or cash equivalents, are entering and leaving your startup, helping you make better decisions and communicate with your investors.

A cash flow statement is one of three mandatory financial statements for businesses to monitor and share the state of their company’s finances. Along with the other two, profit & loss (P&L) and balance sheet, these three statements provide a holistic view of your startup’s financial standing.

Cash flow statements provide insights into a company’s cash flow. In other words, how are a company’s cash and other assets equal to cash entered and left during a specific time period? Sections of the cash flow statement are typically broken down into operating activities, investing activities, and financing activities.

Of the three financial statements recommended for businesses, P&L, balance sheet, and cash flow statement, the CFS offers the most holistic insight into the financial wellness of a business. There are several use cases for a cash flow statement, including communication with investors, business planning, and generating insights. 

Provides Valuable Insight 

While a P&L offers a look into the spending activities of a company, a cash flow statement provides a more well-rounded view of where the money is being spent or obtained, categorized into three sections: operating, investing, and financing. This generates valuable information to evaluate the financial position of the company. 

Aids in Long and Short-Term Planning

Knowing your startup’s spending habits, required expenses, and in-flow of cash allows you to make short and long-term plans for the health of your business that are rooted in valuable data. 

Crucial for Investors 

Investors need to know where funding is being spent within the companies they are investing in. Cash flow statements provide a comprehensive overview of cash received and spent as well as the end balance of cash and cash equivalents over a period of time.

Now that you know the details behind startup cash flow statements and why your business needs one, it is time to get started preparing your statement. 

There are three categories within a cash flow statement: 

• Operating activities
• Investing activities
• Financing activities

These encompass all the cash and cash equivalents entering and leaving your business and, when combined, result in an end balance of cash over the respective period of time.

To get started, you need to gather all of the information that involves cash, or an equivalent, coming or going from your startup. These can include the P&L sheet and balance sheet mentioned previously, but it doesn’t stop there. 

To make a comprehensive statement of your startup’s cash flow, you need all documentation and data about finances related to your business, both cash-in and cash-out. With this information in hand, you can easily organize your cash flow into your statement’s three categories: operating, investing, and financing activities.

The first addition to your cash flow statement is operating activities. This is the amount of cash received or spent in relation to your startup’s product or service, which is considered cash from operating activities. 

This includes everything from the money made from sales to employee salaries to production expenses. Essentially, any cash that is made or deployed to conduct operations. However, this also applies to any changes made in accounts receivable or payable, as well as depreciation and interest paid. 

Direct vs. Indirect Method 

To calculate operating activities, you need to use either the direct or indirect method to total up cash generated from operating activities. 

• Direct method involves compiling a list of all cash-in from operations and subtracting the cash-out from operations. 
• Indirect method requires determining a starting balance that can be found on the income statement or P&L. From here, you subtract the time period’s expenses, such as depreciation and debt repayment.

Any of your startup’s investments will be considered investing activities. Investments could include mergers and acquisitions, the purchase or sale of assets, and any loans given out by your company.

It is important to note that if your startup invests in new equipment or property, it should be listed under investing activities as well.

Add all of your cash-in investing activities and subtract cash-outs or expenses to generate cash generated by your startup’s investing activities.

Any capital obtained or paid to banks or investors should be listed under financing activities, including funding, dividends, or loan proceeds and repayments to investors or creditors.

Combine all cash-in and cash-out financing activities to total up the cash generated from financing activities.

After you’ve confirmed all of your cash generation totals are correct from operating, investing, and financing activities, determine your end balance.

Then, compare your end balance to the total of cash and cash equivalents from the beginning of the period to display the increase or decrease in cash flow over the course of the time period.

While you can find free cash flow statement templates online, keeping an updated log of cash entering and leaving your company as they occur can save you time and energy. We recommend using cash flow or finance management software to streamline processes for your startup.

QuickBooks offers cash flow statement tools in addition to their accounting and cash flow forecasting services to help you track and manage cash-ins and cash-outs as they occur. Plus, the service offers a free cash flow statement template that is downloadable on their website.

Float is a cash flow management software that goes beyond preparing cash flow statements for startups. On the platform, users can apply potential expenses to visualize the impact on cash flow as well as take advantage of human-reviewed cash flow forecasting.

PlanGuru offers budgeting and financial data insights as well as planning and forecasting tools for a holistic cash flow management experience. The software also integrates with QuickBooks to add an additional layer to your financial management stack.