A cash flow statement is a financial report that shows how much cash is moving in and out of a business over a specific period of time. Think of it like your business’s checking account—it tells you how much real money is available to run the show.

💡 Why It Matters

Even if your business is “profitable” on paper, you can still run out of money. That’s because profit includes non-cash items like depreciation. Cash flow shows what’s actually in the bank to pay bills, make payroll, or invest in growth.

🧾 The 3 Sections of a Cash Flow Statement

1. Operating Activities

   - This section shows cash from your day-to-day business.
  - Includes: customer payments, vendor payments, payroll, rent, utilities.
  - If this section is positive, your business is generating cash from operations. If it's negative, you might be relying on loans or investments to survive.

2. Investing Activities

   - Tracks money spent on or received from long-term assets.
  - Includes: buying or selling property, equipment, vehicles, or investments.
  - It’s okay if this is negative—it can mean you're growing.

3. Financing Activities

   - Shows how you fund the business or return money to investors.
  - Includes: loans taken or repaid, owner distributions, or investor funding.
  - Helps you see how much you’re depending on outside money.

🧠 Two Ways to Prepare It

- Direct Method: Lists every actual cash transaction. Simple but takes more effort.
- Indirect Method (most common): Starts with net income and adjusts for things like depreciation or changes in accounts receivable/payable.

✅ What It Tells You

- Can I pay my bills this month?
- Am I running on my business... or on borrowed money?
- Are my investments creating a cash drain?
- Do I need to make changes to improve my financial flow?

🔍 Bottom Line

The cash flow statement is your reality check. It tells you what’s really going on with your money—not just what your profit and loss statement says is happening. If you want to make smart business decisions, this is the report to watch.