Cash flow is the money that comes in and out of your business and it is considered to be its lifeblood. According to a study from the US Bank, 82% of business failures result from poor cash flow management skills. Therefore, preparing monthly cash flow statements is an important step to take in order to ensure that your business does not run out of money.  Keep in mind that your business' profits are not necessarily equivalent to your cash ins and outs.

A basic cash flow statement includes five sections:

• Beginning Cash Balance: This section includes the cash available both in the bank and at hand at the beginning of each month. If you have $800 in your checking account and $400 in cash, your beginning cash balance is $1200.
• Cash In: Includes all the activities that bring cash to your business, such as cash from sales and receivables (cash payments for old debts). If you earned $1000 in cash from sales and $400 from people who paid their old debts, your total "Cash In" is $1400.
• Cash Out: Lists all the expenses that take cash out of your business. Items commonly listed under this section include cash used to pay rent, salaries, supplies, loans, and taxes. If you paid $700 for rent, $200 for supplies, and $1000 for salaries, your "Cash Out" totals $1900.
• Net Change: Determined by subtracting the total "Cash Out" (the 3^rd section) from the total "Cash In" (the 2^nd section). In our example, your net change is: $1400 - $1900 =      -$500. Keep in mind that a positive cash flow enables your business to keep growing.
• Ending Cash Balance: Calculated by adding the "Net Change" (section #4) and the "Beginning Cash Balance" (section #1). The "Ending Cash Balance" becomes the "Beginning Cash Balance" section of the next period.

Use the above information to track spending and create a Cash Flow statement that resembles the following:

            Beginning Cash Balance:                             $1,200
            Cash In:
                      Sales:                                    $1,000
                      Receivables Collected:      $400
                      Total Cash In:                                        $1,400
            Cash Out:
                      Rent:                                     $700
                      Supplies:                              $200
                      Salaries:                               $1,000
                      Total Cash Out:                                     $1,900
            Net Change:                                                    ($500)
            Ending Cash Balance:                                   $700

 Tip: A negative "Net Change" means that you spent more than what you earned. If this is the case, you should reduce some expenses to ensure that you do not deplete your business' cash reserves.

Click here for a Cash Flow Calculator

Cash Flow Projections Worksheet

ACCION USA 2009 ©