Statement of Cash Flow: What is It and Why Do I Need It?

February 2020

Are you sure that your small business is successful? If you use your profits to gauge your company’s health, you may be in for an unpleasant surprise. You can have a profitable business that fails because it doesn’t have enough cash flow to sustain itself. Keep an eye on your complete financial picture by creating a cash flow statement.

What is a cash flow statement?

A cash flow statement is a summary of the cash (and cash equivalents) that is moving into and out of a business. It indicates whether a business can meet its financial obligations. It is different from the profit statement, as profit, sometimes called “net income” is the money that is left over after you have met your business financial obligations.

How do I calculate a cash flow statement?

For a small business, where you are not obligated to file cash flow statements, the process can be more streamlined than creating a formal statement. Review:

Accounts receivable: what are you owed and when can you realistically expect to receive it?

Accounts payable: what do you owe, and can you meet your obligations?

Shortfalls: Do you owe more than you can pay?

You may be able to track your cash flow on a basic spreadsheet, or you may want to use a small business accounting program that will run the calculations for you. Or you may want to hire an accountant, and have him or her run a comprehensive cash flow statement annually or even quarterly if your business is in a growth cycle (businesses can be faced with a lot of expenses when they are seeing significant growth, and at the same time may be waiting for invoices to be paid). You can maintain the statement on your own in between accountant visits.

What is Cash Flow Positive and Cash Flow Negative?

Cash Flow Positive indicates that you have more money coming into your business than what is going out. Cash flow negative means that more money is going out of your business than you have coming in. This can happen if your business is seasonal, if you’ve had to make a large purchase of equipment or inventory or are growing rapidly. Or your clients/customers may not pay their bills on time or may make partial payments. There are other reasons too, but essentially Cash Flow Negative happens when you don’t have immediate access to the funds you need to meet your basic business financial obligations such as payroll, rent, utilities, vendor payments, etc.

How often should I do a cash flow statement for my small business?

Consider tracking it month-by-month for the first two years or so. Eventually you may want to move to tracking quarterly. During times of growth or slow cycles, you may want to look monthly to catch any evolving issues before they become problems. Situations to watch for include always needing to wait for payments from customers before you can pay your own bills, consistently paying your bills late, and when your accessible funds do not seem to align with your business’ profit and loss statement.

What can I do to fix a cash flow problem?

If your small business frequently experiences a cash flow crisis, take remedial action to address it. You may also want to talk to a financial professional, attend small business financial workshops, or find a mentor.

If you rarely have cash flow concerns, chances are your cash flow problems are caused by bad timing. A short-term loan or line of credit from a bank can be an option that gets you through a rough spot. However, small business bank loans are rarely fast or easy to get, especially if you don’t have an excellent credit history and a detailed business plan.

If you don’t qualify for a bank loan, or need funding within days instead of weeks, consider looking into alternative funding sources. These funders offer options designed to meet the needs of smaller businesses. Business owners don’t need to have perfect credit scores to be approved, alternative lenders are more concerned about your ability to pay now than your past credit history. And the application and approval process typically takes minutes, not months.

One easy way to get the process started is by getting pre-qualified by One Park Financial, a company that focuses on helping owners of small and mid-sized businesses access funding. Visit or call 855.218.8819 and connect with a funding expert to discover the options that make sense for you and your business.