How to Prepare a Cash Flow Statement for Your Business Professionally?

Annual Report and Financial Statements Preparation in Barcelona

Posted on Nov 21, 2022 at 09:11 PM

The cash flow statement is one of the company's most critical financial reports and is one of the pillars of successful financial management. This is because the cash flow statement is conversant with all the information and cash flows about all the money in and out of your company.


The primary financial statements of any company are divided into three sections, including the report on the economic income statement, operating balance sheet and cash flow statement. Although these three statements are essential and used by financial leaders, most assert that the cash flow statement is the most important.


Regardless of your position, you must be familiar with the concept of cash flows as a business owner or an employee of a company. This helps you a lot to improve your performance in your professional life in light of the rapid financial change in our world.


What is the Statement of Cash Flows?

A cash flow statement is a report that states how much money your business has earned and spent over a specific time. 


A Cash flow statement also shows you how much cash you have and provides information about all the investments, businesses, and activities that can affect your money.


In addition, the cash flow statement shows the profitable and losing areas within the business. That is why many analysts and investors use the cash flow statement to help them in the economic feasibility study or in evaluating projects to invest in them.


The cash flow statement is divided into small sections to provide more detailed information about all cash activities. This information helps to identify and solve the financial problems in the company to reach the desired monetary financial management goal.


For example, if the cash flow statement indicates a budget deficit in a certain period, you must look for ways to eliminate this deficit. For example, you are taking action to reduce costs or raise your prices.


On the other hand, if the list indicates excess cash, it may disburse a bonus to employees or decide to purchase new equipment for the facility or the organisation that owns it.


So, the cash flow statement enables you to predict the number of business operations or sales that may occur. All this is based on previous experiences, thus increasing the resulting profit ratios.


The cash flow statement is significant when you seek financing. Banks or investors often require a cash flow statement when you seek funding. Using the cash flow statement, the lender can determine if your business is fiscally sound and will be able to repay the loan or investment.


Annual Report and Financial Statements Preparation in Barcelona

How do we prepare a cash flow statement?

The easiest way to calculate cash flow is to run a cash flow report in your accounting software. On the other hand, you may not be using accounting software or do not like such programs, and in light of this point, we present a short guide to preparing your cash flow statement.


The cash flow statement is prepared for specific periods according to your convenience, whether monthly, semi-annual or annual.


There are two methods of preparing the cash flow statement, the direct method and the indirect method. The direct approach is the easiest.


Therefore, here is an explanation of the preparation of a typical cash flow statement consisting of four steps according to the direct method:


  • Select the opening balance (starting balance):

Determining the opening cash balance is the first step in preparing a cash flow statement. It means the total cash amount you will pay for the project or business you want implementation.


You can determine the opening balance by knowing the income statement and asking your accountants about it in the company.


  • Calculate the Cash Coming in (Sources of Cash):

Figure out all the money you expect to take in during your chosen period to prepare the cash flow statement (monthly, yearly, weekly).


Then include only the actual money you will receive within this period from whatever source (activities, sales, loans, investments, bank transfers, etc.).


Here is an example to enhance understanding: If you sign a contract worth $30,000 for three months and you only get a partial amount, say $20,000, then the actual amount you will include within this period is only $20,000. This is because it is the cash currently available in your hands.


In short, include every dollar that will flow into your company from wherever it is.


Add the figure you’ve arrived at in Step 2 to your opening balance from Step 1 to get your total cash balance for the period.


  • Determine the Cash Going Out (Uses of Cash)

This step is similar to the second step in determining amounts and implications. The difference between them is that in this step, the calculated and included amounts are expenses, not revenues. You must specify all the fixed and variable costs you expect to pay during the period chosen for preparing the cash flow statement.


Then include only the amount paid in any financial activity within that period (e.g. taxes, salaries, loan payments, rents)


For example, if you have a $5,000 monthly loan and it's time to pay it off, you must include it in cash.


Simply include every dollar that will leave your company during this period.


  • Determine the Remaining Balance

The fourth and final step in preparing the cash flow statement. This step boils down to subtracting the expenses and payments in step three from the total cash balance. That is the sum of cash in the first and second steps, where the result of the subtraction will be the rest of the money available in the specified period.


This same amount will be your opening balance at the beginning of the period following the preparation of a new cash flow statement.


And here, we have to draw your attention to the need to pay attention to the amount of criticism left. If the remaining cash is negative, you suffer from a cash deficit, meaning that your income from the funds is insufficient to cover all your expenses.


In a month, you can prepare mini cash flow statements. After that comes collecting it to obtain an annual or semi-annual flow statement.


But suppose you want to know the indirect method of preparing the cash flow statement and expand the direct way in more detail. In that case, we recommend attending the Annual Report and Financial Statements Preparation in Barcelona courses.



Most customers pay on time. Some of them need to pay on time, and here lies the essence and importance of the cash flow statement in determining the periods in which you should increase or decrease the amounts you spend to achieve the desired profit.