The basics of a cash flow statement for business owners

Running a business means keeping a close eye on your cash—not just what’s in the bank right now, but how money moves in and out every day. That’s where a cash flow statement comes in, showing you exactly where your cash is coming from, where it’s going, and how much you actually have available to keep things ticking along smoothly.

In this guide, we’ll break down what a cash flow statement is, why it matters, and how to use it—so you can run your business with confidence, backed by real cash insights.

What is a cash flow statement?

A cash flow statement is a financial report that shows the money flowing into your business (cash in), the money flowing out (cash out), and the amount that's left after the dust settles (your net cash position). It tells you about your liquidity—if you have enough cash on hand to cover day-to-day costs, like rent, payroll, and those unexpected “oh no” expenses.

Think of it like your business’s bank statement on steroids—it doesn’t just tell you what you have, but how it got there.

Alongside your balance sheet (which records your assets and liabilities) and profit & loss statement (which tracks revenue and expenses), your cash flow statement helps paint a full picture of your business's financial health.

Why you need cash flow statements

Picture this: you clock in for the day, open your inbox, and find a supplier invoice for $5,000. You go to pay... only to realise your account balance is sitting at $3,000. Nightmare come true, right?

A cash flow statement helps you avoid situations like this, giving you the foresight to plan ahead, keep your business moving, and still have a buffer for unexpected costs.

It isn't just an accounting formality—it’s a key pulse check that helps you [1]:

• Understand how much liquidity you have available at any given moment
• Prevent cash shortfalls by showing upcoming gaps before they hit
• Improve supplier relationships with on-time payments
• Keep payroll running smoothly so your team stays happy and motivated
• Spot payment cycles and seasonal trends
• Support better decision-making with real-time cash insight
• Secure financing by proving to lenders you manage cash well

What's in a cash flow statement?

Cash flow statements are divided into three main sections:

• Operating activities – Cash from everyday business operations
• Investing activities – Cash used to buy or sell assets
• Financing activities – Cash from loans, repayments, or owner contributions

Let's break these down.

Operating activities

This is the heartbeat of your business cash flow. It's the everyday money moving in and out—the cash you get from customers buying your stuff and the cash you spend to pay bills, suppliers, rent, wages, utilities, and other essentials.

A healthy operating cash flow means your business is making money from what you do every day, without needing to dip into savings or take out loans. The opposite—when you’re spending more cash than you make—is a red flag and the kind you want to spot early.

Example: Charlie, the florist, sells $10,000 worth of flowers in March. She pays $4,000 to suppliers for fresh blooms, $2,000 for rent, $1,500 in wages to staff, and $500 in utilities and other bills. The net cash flow from operating activities is the cash coming in minus these costs.

Investing activities

This one’s about the bigger picture moves—buying or selling stuff that helps your business grow long term, like equipment, vehicles, or that shiny new computer you needed. Cash going out here is usually for investing in your future; cash coming in might be from selling off things you don’t need anymore.

Investing cash flow tells you if you’re putting your money where it counts or if you’re pulling back and selling assets. Either way, it helps you see how your business is evolving.

Example: Charlie decides to upgrade the shop’s flower cooler and pays $3,000 for a new one. Later, she sells an old delivery van for $5,000. The cash flow from investing activities will include these outflows and inflows.

Financing activities

This is where you track the cash moving between you and the outside world, used to fund your business—taking out loans, paying back debts, bringing in investors, and even paying yourself or other owners.

Good financing cash flow means you’ve got the backing to keep your business growing or handle rough patches. But if you’re constantly relying on loans without solid operating cash, that’s a warning sign to rethink your strategy.

Example: Charlie takes out a $15,000 small business loan to expand, and in the same month, she makes a $2,000 repayment on an existing loan. The cash flow from financing activities reflects these cash movements.

So, is Charlie's cash position positive or not so much?

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Charlie’s business brought in $17,000 more cash than it spent in March, so her cash position improved by $17,000 overall.

How to prepare your cash flow statement

Step 1: Collect all your financial info

Pull together your bank statements, balance sheets, profit & loss (P&L) statements, and past cash flow statements if you have them. The more context, the better.

Step 2: Categorise cash flows

Sort them out into the three sections we mentioned before: operating, investing, and financing.

Step 3: Prepare your operating cash flow

Now, pick your method:

• Direct method: You list actual cash received and cash paid out. This one's popular among smaller companies and start-ups, and it is the clearest way to see where cash is coming and going, but it does require detailed cash records.
• Indirect method: You start with your net profit or loss from your P&L statement, then adjust for for things that don’t affect cash (like depreciation) and changes in working capital (like unpaid invoices). This method is the most commonly used method; it links your accounting profit to your cash flow and works well if you use accrual accounting.

Both methods get you to the same net cash flow number, but they show it differently and need different info to get there.

Step 4: Prepare your investing cash flow

Add up cash spent on buying assets and cash you received from selling any.

Step 5: Prepare your financing cash flow

Include cash from loans you took out or paid back, money investors put in, or dividends you paid.

Step 6: Calculate total net cash flow

Combine your net cash flows from operating, investing, and financing activities together to see your total cash movement.

Step 7: Check your cash balances

Start with your opening cash balance, add your total net cash flow, and check that it matches your closing cash balance on your bank statement. If it doesn’t, double-check your numbers.

Step 8: Review and use your cash flow statement

Look for patterns, spot any warning signs (especially negative cash flow), and use this insight to make smarter business moves:

• Know when you have enough cash for key expenses without nasty surprises
• Catch upcoming cash gaps before they become a crisis
• See when you can afford to buy new equipment, expand your team, or invest in marketing without risking your cash flow
• Track loan repayments and know when you might need to refinance or avoid taking on more debt
• Pay your suppliers and staff on time to keep trust strong and your operations smooth
• Use real cash data to guide pricing, spending, hiring, and other key moves
• Show lenders or investors you’ve got a solid grip on your cash flow—increasing your chances of approval

Showing you’ve got a solid grip on your cash flow can be the difference between a yes and a no from lenders. If you're looking to get a business loan, we might just be the helping hand you need.

We help Australian SMEs (20k and counting!) access fast, flexible loans tailored to your needs and getting started couldn’t be easier: just tell us a bit about your loan needs, and we’ll handle the approval from beginning to end, so you can focus on what matters—your business. Get a quote today.

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Cash flow statement vs profit & loss statement

While your P&L statement shows whether your business made a profit or loss over a certain period, it doesn’t really tell the whole story, because it includes things that don’t immediately affect your cash on hand. In other words, you can be profitable on paper but still run low on actual cash.

This is where the cash flow statement shines. It focuses purely on the movement of cash, revealing whether you can actually cover expenses as they arise, which is critical to keeping your business running smoothly day to day.

Cash flow statement vs balance sheet

Your balance sheet shows what your business owns, owes, and what is left for the owner at a particular moment in time. It tells you the value of your business at that instant and includes cash alongside other important assets—think inventory and equipment.

The cash flow statement, on the other hand, is a story over time, tracking how your cash balance changes from one period to the next. So while the balance sheet shows what you have right now, the cash flow statement explains how your cash position got there and where it’s heading.