What is a cashflow statement?

At a basic level, a cashflow statement details the movements of money in and out of a business over a defined period. The cashflow statement enables you to monitor bank balances, allocate reserves, manage investments and plan significant procurement.

The cashflow statement will be linked to and informed by the profit and loss report and the balance sheet. The profit and loss report will inform the levels of money expected to move in and out of the business from trading activities. The balance sheet then reflects the overall status of the business, considering money owing, money owed and the impact this has on the fixed and tangible assets held by the organisation.

How do I create a cashflow statement?

Cashflow statements can be a relatively straightforward record of known ‘ins and outs’ and a running balance or a more complex long-term planning tool. Which style is most relevant to you comes down to the intended purpose. So, before you begin, consider what it is you are seeking to achieve. Is this a one off exercise prompted by a concern about reserves, or is this a long term planning tool? You can then determine what level of detail you need to add.

Next, consider the period frequency you will be using. Whilst accounting software will work on a fixed period basis e.g., weeks or months, cash movements don’t necessarily understand time boundaries. Furthermore, as one aspect of a cashflow statement will be monies paid to you, you have to accept that this is not entirely under your control, so you need the ability to build in some flexibility. It may be that you end up with a hybrid of days, weeks and months, providing more granular detail in the immediate future, moving to a macro view in the long term.

5 Simple steps to creating a cashflow statement

As noted above, the structure and detail of your individual cashflow statement is going to reflect your own needs or those enforced on you by a third party e.g., bank or investor. But the following steps are a good reminder of the key aspects present in most cashflow reports and will function as an aide memoir for yours. Like most accounting reports, Excel is the best tool to use.

1. Set up your structure, typically one axis of periods (days, weeks, months) and the other to detail the nature of the individual entries
2. Add your debit and credit columns. This can be managed as individual columns or you may decide to show debits and credits as +/- figures in a single column.
3. Add a rolling balance column alongside, with an opening balance.
4. Add the values for each of the following into the relevant period, using the most likely transaction dates (cleared receipt/payment):
   1. Receipts of income from trading activity – either apply your standard terms across the board, or use your average debtor days to calculate this
   2. Payments of known and typical spend e.g., Direct Debit dates and your own planned payments
   3. Payments of taxation (VAT payments, PAYE, Corp Tax)
   4. Payments of loan repayments
   5. Receipt of other forms of income e.g., bank interest, investments
5. Add any conditional formatting required to highlight exceptions

This model can be used for a combined cashflow statement, but you may equally want to set up multiple versions of this to show individual accounts or currencies and then provide a cumulative summary, rolled up by week or month – again subject to your reporting criteria.

In more complex models your cashflow statement may need to take into consideration other areas of the business where cash is being utilised up e.g., fixed assets or stock/inventory. This takes a little more planning but still works on the same principles of maintaining a rolling balance.