What Is a Cash Flow Statement and Why Does Your Business Need It?

There are certain types of financial documents you should prepare when seeking financing for your business, one of which is a cash flow statement. Also known as a statement of cash flows, it provides quantifiable insight into your business’s cash flow. Lenders and investors alike may use this information to determine whether you are a good candidate for financing. What is a cash flow statement exactly?

What Is a Cash Flow Statement and Why Does Your Business Need It?

What Is a Cash Flow Statement?

A cash flow statement is a financial document detailing a business’s incoming cash and outgoing cash during a specific period. It’s designed to provide an overview of how a business used its cash during the reporting period. Nearly all businesses have incoming cash and outgoing cash. Revenue from sales is incoming cash, whereas expenses are considered outgoing cash. A cash flow statement breaks down a business’s inbound and outbound money.

The 3 Sections to Include in a Cash Flow Statement

There are three sections in a typical cash flow statement. They include an operating activities section, an investments section and a financial activities section. The operating activities section reveals revenue and expenses associated with a business’s money-making operations. The investments section reveals gains and losses associated with investments. The financial activities section reveals cash flow between the business and its owners, shareholders or creditors.

How Cash Flow Statements Affect Financing

Lenders and investors may require a cash flow statement from business owners who are seeking financing. If you’re looking to finance your business with a loan, the lender will probably want to ensure that your business is stable and capable of repaying the borrowing money. A healthy cash flow statement with a lot of incoming cash and minimal outgoing cash will give the lender peace of mind, in which case you’ll be more likely to get approved for the loan.

Investors pay attention to cash flow statements as well. Rather than financing your business with a loan, you can use equity financing. Equity financing involves the sale of ownership or equity — typically in the form of stock shares — to an investor.

Most investors will want to look at your business plan before agreeing to buy an equity stake in your business. When preparing your business plan, you should include a cash flow statement.

This article was brought to you by Intrepid Private Capital Group, a Global Financial Services Company. For more information on startup and business funding, or to complete a funding application, please visit our website.