Cash Flow Statement

What is a cash flow statement?

A cash flow statement is one of the three main financial statements (along with the profit and loss statement and balance sheet). While the P&L shows profitability and the balance sheet shows financial position, the cash flow statement shows the actual movement of cash—where it came from and where it went.

For small business owners, this report answers a critical question: even if we're profitable on paper, do we actually have enough cash to operate?

The three sections of a cash flow statement

Cash flow statements organize cash movements into three categories:

• Operating activities — Cash from daily business operations: customer payments, vendor payments, wages, rent
• Investing activities — Cash for long-term assets: buying equipment, selling property
• Financing activities — Cash from funding: loans, owner investments, loan repayments

Why cash flow statements matter

Profitable businesses can fail if they run out of cash. The cash flow statement shows whether your business generates enough cash from operations to sustain itself, or whether you're relying on loans or selling assets to stay afloat. Banks often request cash flow statements when evaluating loan applications.