- A cash flow statement shows whether you actually have enough cash to keep the business running for essentials like rent, wages, and suppliers.
- It breaks cash into three buckets — operating, investing, and financing — so you can quickly see if your business is generating cash, burning it, or relying on funding to stay afloat.
- Keeping it up to date helps you spot cash gaps early, make better timing decisions, and strengthen your position when applying for finance.
Running a business means knowing whether you’ve actually got enough cash to operate, and that’s where a cash flow statement comes in.
It shows how cash is really moving through your business and whether you can stay ahead of expenses when they hit. Here’s what a cash flow statement actually shows you.
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 your net cash position over a set period.
It tells you about your liquidity: if you have enough cash on hand to cover day-to-day costs, like rent, payroll, and unexpected expenses.
Alongside your balance sheet and profit & loss statement, it helps paint a full picture of your business's financial health.
Why do you need cash flow statements?
A cash flow statement helps you stay ahead of problems most business owners only see when it’s too late.
It gives you the clarity to [1]:
- Know when you’re safe to spend and when you need to hold back
- Avoid getting caught short when expenses arrive before income
- Keep supplier payments on track and avoid unnecessary friction
- Maintain steady payroll without stress or delays
- Spot seasonal patterns and payment timing issues early
- Make decisions based on actual cash timing, not accounting profit
- Strengthen funding applications by showing lenders you manage cash properly
What's in a cash flow statement?
Cash flow statements are split 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 (day-to-day cash)
This is the cash your business generates and spends through normal operations. In other words, sales coming in and expenses going out, which includes things like customer payments, rent, wages, supplier costs, and utilities.
If operating cash flow is consistently positive, your business is sustaining itself through what it actually does. If it’s negative, you’re relying on external cash just to stay afloat.
Decision insight: If operating cash flow is weak over time, your business model may not be self-sustaining.
Investing activities (long-term decisions)
This covers cash used to buy or sell assets like equipment, vehicles, or technology.
Cash outflows here are usually investments in future growth, while inflows might come from selling assets you no longer need.
Decision insight: Investing outflows aren’t bad on their own. What matters is whether they’re building future value or masking cash pressure.
Financing activities (external funding)
This shows cash moving between your business and external funding sources – think loans, repayments, investor money, or owner contributions.
If your financing activities are consistently positive, it often means your business is relying on external cash to support operations or growth.
Decision insight: Heavy reliance on financing can signal that the business isn’t generating enough internal cash to sustain itself.
A cash flow statement, put into practice
Charlie sells $10,000 worth of flowers in March. She pays $4,000 in supplier costs, $2,000 in rent, $1,500 in wages, and $500 in other expenses.
Her operating cash flow is $2,000.
She then:
- Buys a new flower cooler for $3,000
- Sells an old delivery van for $5,000
→ Net investing cash flow: +$2,000
She also:
- Takes out a $15,000 loan
- Repays $2,000
→ Net financing cash flow: +$13,000
Her total cash flow for the month is +$17,000.
On paper, that looks strong, but the key question is where that cash is coming from. A healthy business wants that growth driven by operations, not just financing.
How do you prepare a cash flow statement for your business?
Step 1: Collect all your financial info
Pull bank statements, balance sheets, profit & loss reports, and past cash flow statements if you have them. The more context, the better.
Step 2: Categorise cash flows
Group everything into operating, investing, and financing activities.
Step 3: Prepare your operating cash flow
You can use:
- Direct method: Tracks actual cash in and out. It’s popular among smaller companies and it’s the clearest way to see where cash is coming and going, but it requires detailed cash records.
- Indirect method: Starts with profit and adjusts for non-cash items. This 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: Add investing cash flow
Include all asset purchases and sales.
Step 5: Add financing cash flow
Include loans, repayments, and any investor or owner funding.
Step 6: Calculate total net cash flow
Combine net cash flows from operating, investing, and financing activities together to see your total cash movement.
Step 7: Reconcile balances
Start with your opening cash balance, add your total net cash flow, and check that it matches the closing cash balance on your bank statement. If not, double-check your numbers.
Step 8: Use it to make decisions
This is where the real value sits. A cash flow statement helps you:
- Know when you can safely invest or spend
- Catch cash gaps before they become critical
- Decide when hiring or expansion is actually viable
- Time repayments or refinancing decisions properly
- Keep supplier and staff payments consistent
- Use real cash data to guide pricing, spending, and hiring
- Strengthen funding applications with clear cash control
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 can help you compare options and find the right fit.
We help Australian SMEs 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 running your business. Get a quote today.
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What's the difference between a cash flow statement and a profit & loss statement?
A profit & loss statement shows whether your business is profitable over a period of time, but profitability doesn’t always mean you have cash available.
You can be profitable on paper and still run out of cash if payments are delayed or expenses hit early.
That’s why cash flow matters: it shows whether you can actually pay your bills when they arrive.
What's the difference between a cash flow statement and a balance sheet?
A balance sheet shows what your business owns, owes, and what’s left over at a point in time. A cash flow statement shows how your cash position changes over time.
One is a snapshot. The other is movement.
Together, they tell you where your business stands, plus how it got there and whether it can keep moving.
