Understanding your cash flow, or how money travels in and out of your business, helps you make informed financial decisions. But with all of the purchases and sales you make in a given month, it can be tough to know for sure where every dollar goes. By creating a statement of cash flow, you can better understand your business’s budget – and what you need to do to stay on track. Use this worksheet and the tips below to create a comprehensive cash flow model. 

Where your money goes 

A statement of cash flow generally has two columns: credits and debits. These columns allow you to track your income and expenses across a variety of categories, including net income, and cash flow from operations, investments, and financing activities. 

  • Operating Activities: To understand your operating budget, add any increase in accounts receivable, inventory, and credit card payables you’ve seen in the last month to your monthly net income. Then, subtract any depreciation expenses and decreases in accounts payable from that amount. 
  • Investing Activities: If you purchased any vehicles, equipment, or property throughout the month, subtract the cost from the operating budget you outlined above. If you sold any of these types of items, add the sale amount to your operating budget instead. 
  • Financing Activities: Money that comes in and out of your business in the form of loans or loan payments will have a large impact on your cash flow. You can track this impact by subtracting any principal payments to banks for loans, or cash withdrawals from potential credit increases you’ve collected in a given month. For instance, if you paid $5,000 toward your commercial mortgage, but were also approved for a $20,000 working capital line of credit, the net impact of your financing activities would be $15,000. If you did not receive an increase in credit, the impact would be $5,000. Add or subtract this amount from your running total. 

Add it up

Finally, add the amount of cash you had on hand at the beginning of the month to your total. This will tell you how much working capital you’re ending the month with. If you follow this process on a monthly basis, you’ll be able to identify where your cash is going and find opportunities to improve.

Once you know how to manage your cash flow, you can begin to think about ways to use your capital to invest in your business. From hiring employees to marketing your brand, understanding your cash flow helps you focus on what you love most – running your business.

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