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The 12-month cash flow statement is one of the three key financial statements for a business. (The other two are the balance statement and the profit and loss statement.)

Similar to a checking account statement, the cash flow statement shows the money going into and coming out of your business.

As a startup, you’ll need to include a cash flow statement in the financial section of your business plan. “How can I have cash flow when my business isn’t open yet?” you may ask. The cash flow statement is all about projecting the future. You’ll list when you expect money to come in and when it will need to be paid out.

What is in a Cash Flow Statement?

The cash flow statement includes:

• Cash received. This might include income from sales, loan proceeds, or interest income. If you’ve already made some sales or received some orders, you can estimate when you will actually get paid.
• Cash paid out. This includes inventory and other purchases, payroll, rent, utilities, taxes, loan payments, and more. (This cash flow statement template includes a “pre-startup” column for cash paid out before the beginning of the cash flow statement period.)

Subtract cash paid out from cash received, and you have your cash position for the end of the month.

How to Use a Cash Flow Statement

For a new business owner, every dollar of startup capital is precious. Cash flow problems are a common cause of small business failure. Regularly reviewing your cash flow statement can help you avoid this fate. In fact, as a startup, you should know how much cash is in your business bank account at the end of each day.

It’s possible to have lots of revenue coming in and still not be able to pay your bills. This can happen if you have more money going out than coming in or if your customers don’t pay you for 30, 60, or 90 days. Use your cash flow projection to anticipate your working capital needs and plan ahead for upcoming expenses so you don’t run out of money.

Keep your cash flow forecast extending 12 months out at all times. Update your cash flow forecast weekly with actual figures. As your business gets underway, you will get better at forecasting cash flow with greater accuracy.

Do you need help with your cash flow statement? Connect with a SCORE mentor online or in your community to get free, personalized advice.