As a business manager, you need to properly manage and understand your startup’s finances. An essential and reliable way to monitor your startup financial projections is with the help of a cash flow statement.

A cash flow statement is a document that summarizes all of the sources and uses of cash over a designated period of time. It is one of the most important financial statements for businesses as it outlines the inflows and outflows of a company’s cash. The statement helps business owners and investors to quickly examine the health of the company, assess possible risks, and track financial performance.

The purpose of the cash flow statement is to show the movements in cash over a certain period of time. It reveals the amount of cash coming into a business and the amount of cash going out. The statement is important to properly understand the business’s financial activities, and to make appropriate decisions regarding investments, financing, and operations.

Key Takeaways

  • A cash flow statement summarizes the sources and uses of cash over a designated period of time.
  • The statement helps business owners and investors to identify potential risks, track financial performance and make decisions.
  • The purpose of the cash flow statement is to show the movements in cash over a certain period of time.
  • It is important to properly understand the business’s financial activities in order to make informed decisions.

Steps for Creating a Cash Flow Statement

The cash flow statement is a useful tool for tracking a startup’s money. When done correctly, it provides a clear picture of where the money is coming in and going out. By creating and monitoring a cash flow statement, startups can ensure their financial projections are accurate and on track.

To begin creating a cash flow statement, follow these steps:

Determine sources of cash

The first step is to determine the sources of cash that the startup has. These might include the following:

  • Investment funding
  • Loans from banks
  • Income from sales
  • Revenue from investments

Monitor sales

The second step is to monitor the sales of the startup. Keeping track of the sales figures allows the cash flow statement to be updated as orders come in. It also shows the startup’s progress over time and is an essential element to accuracy.

Calculate operating expenses

The third step is to calculate the operating expenses of the startup. These include things such as employee salaries, rent, and other administrative expenses. The cash flow statement should take into account these costs when calculating the cash flow.

Track inventory

The fourth step is to track the inventory of the startup. Inventory that is not sold can still have an impact on the cash flow of a startup. Accounting for inventory will help make sure the cash flow statement is accurate.

Invest in assets

Finally, the fifth step is to invest in assets such as property, equipment, and vehicles. These investments should be included in the cash flow statement so the impact of these investments on cash flow can be monitored.

Benefits of Using a Cash Flow Statement

The use of a cash flow statement is an effective way to monitor a startup's financial projection. It serves as a great tool for informing financial decisions, highlighting areas of improvements, and fostering responsibility.

Informs Financial Decisions

Using a cash flow statement provides the ability to use financial analytics in order to accurately evaluate whether investments are providing a return, or if there is a need to renegotiate favorable terms. It also gives companies the ability to see what funds are available at any given time, so they can be better prepared for financial negotiations.

Highlights Areas of Improvement

The cash flow statement also serves as an important tool in evaluating where new investments can have the most impact. It can provide the ability to identify areas that are using resources in an inefficient manner, and help determine how capital investments can improve financial performance.

Fosters Responsibility

The use of a cash flow statement can be an effective way to motivate team members to be more responsible with the use of resources. By knowing where money is being spent, and how it impacts results, team members can become more mindful of how their decisions will affect the bottom line.

  • Informs financial decisions
  • Highlights areas of improvement
  • Fosters responsibility

Analysing Your Cash Flow

Analyzing your cash flow is key when it comes to monitoring your startup financial projection. Through the analysis of your cash flow, you can identify patterns in cash inflows and outflows, spot potential cash shortfalls, and assess your capability to leverage debt. Here are a few techniques to help you review your current cash flow more effectively.

Recognise cash flow patterns

A useful first step is to recognize the patterns that emerge in your cash flow over time. Look at the major sources of income and ask yourself how much cash you can realistically expect to receive each month. Are there any seasonal patterns that you need to be aware of? Which expenses should you expect to pay each month, and how can you downsize those costs? Answering these questions will help you understand when and where your cash is flowing. This knowledge can guide you in terms of budgeting and can help you plan for the settling of bigger debts or purchase of assets.

Identify cash shortfalls

Cash shortfalls occur when you overestimate your cash inflows or underestimate your cash outflows. To spot these shortfalls, you can compare your projected costs to your actual expenses, and at the same time compare projected income to actual income. A month-to-month comparison can help you isolate any discrepancies that exist between expected and actual cash flows. It's important to take action immediately if any shortfalls appear, as waiting may result in further financial strain in the future.

Assess the ability to leverage debt

Once you have recognized cash flow patterns and identified any potential shortfalls, you can assess your ability to leverage debt. Assess the amount of cash available to you against your current liabilities and projected income. You should consider different forms of debt you could take on, such as business loans or credit cards, and measure the potential costs and benefits of taking them on. Additionally, consider the terms that lenders offer and determine what makes the most financial sense in the long-run.

By following these techniques, you can better understand the intricacies of your cash flow and make better-informed decisions when it comes to financial planning for your startup. Allocating resources and monitoring cash flow is an ongoing process, so it's important to stay on top of your books and regularly assess your financial position.

5. Limitations of Using a Cash Flow Statement

The cash flow statement is a powerful tool for monitoring business finances and short-term performance goals; however, it does have several limitations and considerations. Being aware of these limitations will help you get an accurate evaluation of your financial projections.

A. Dependent on accuracy of records

The cash flow statement is an important source of financial data and analysis, yet it is dependent on accurate records. If input information is not accurate or up to date, the cash flow statement can be misleading or difficult to understand. To maximize the usefulness of the cash flow statement, all associated transaction data should be up-to-date and perfectly exact.

B. Can’t detect fraud

The cash flow statement is also limited in its ability to detect fraud. As the cash flow statement does not require detailed analysis of transactions, potential fraudulent activities may be hidden. To reduce the risk of potential fraud, you should use additional analytical tools and techniques to thoroughly assess the accuracy of the information.

C. Data may be outdated or incorrect

Finally, the cash flow statement is dependent on the accuracy of the data. If any of the underlying data is outdated or incorrect, the cash flow statement will reflect these inaccuracies. As such, if your financial forecasting relies on this information, it is important to check the accuracy and completeness of your data before using it.

6. Establish a Risk Management Plan

When using the cash flow statement to monitor your startup financial projection, it is important to establish a risk management plan. This plan should include procedures for tracking cash receipts and projecting future cash flow, as well as monitoring employee expenses. By taking a proactive approach to assessing and managing risk, you can help ensure the financial health of your business.

A. Establish Procedures for Cash Receipt

It is essential to establish clear procedures for collecting payments throughout your startup’s operation. Establishing payment policies and procedures will help ensure that you are regularly collecting cash payments and updating your cash flow statement. You should also set up reminders and payment notifications to help remind customers or clients of their upcoming payment due dates.

B. Project Future Cash Flow

Developing an accurate projection of future cash flow is critical for monitoring your startup financial projection. Use financial forecasting tools to identify any potential dips or rises in cash flow, so you can adjust your expenditure accordingly. This information can also help you create more realistic budgets and financial projections for the future.

C. Monitor Employee Expenses

Monitoring employee expenses is essential to managing a profitable business. Track employee spending to ensure that you are meeting budget goals and reducing any unnecessary expenses. It is important to create clear policies and procedures to help ensure that all expenditures are appropriate and necessary.

  • Establish clear procedures for collecting payments.
  • Develop a cash flow projection.
  • Monitor employee expenses.


The cash flow statement is a valuable tool for understanding, monitoring, and predicting the financial performance of a startup. Through careful scrutiny, understanding the cash flow statement can benefit a startup to readily identify issues and make sound business decisions, even before they arise. It allows startups to easily measure the performance of their financial projections.

The importance of tracking sales and expenses can’t be overemphasized, as it is only through constant monitoring of these figures, can startup owners form an accurate picture of their financial standing and make sound business decisions. Furthermore, startups must develop an effective risk management plan to ensure the health of their finances. By formulating several strategies, safeguards, and mechanisms, businesses can avoid potential financial risks.

Following the advice stated in this blog post will allow startups to have easy and quick access to their financial forecasts. By staying mindful of their performance and forming a risk management plan accordingly, startups can maximize their profits and come out successful.

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