Playing the Cash Flow Game – Template Included
One of the last things I address when building a set of financials is the cash flow. For me, it’s like a cash flow game in that the money has to be there to make it attractive to lenders. It might include reducing the owner’s draw, helping them reduce expenses, or even thinking of new revenue streams or raising prices. Regardless of the tweaks we make, it all has to make sense. Today, I’m going to show you how to create a cash flow statement, using the template I’ve provided.
Before you begin!
If you haven’t already created an income statement, I encourage you to do that now. You’ll need the information from your income statement to complete the balance sheet. You’ll find a template and instructions on how to create one here.
Now that you have your income statement at hand, let’s work on determining your cash flow. The cash flow statement has three main parts, which I’ll cover in detail. Download the template and example, and we’ll get started.
Download Cash Flow Statement Template
Download Cash Flow Statement Sample
Cash Inflow
Cash inflow refers the money you’ll be taking in. These funds can come from a variety of sources. In the template you’ll find the following categories:
- Total Revenue – an accumulation of all your sales before any expenses are deducted
- Collection from Credit – typically bad debt that deadbeat borrows finally decide to repay
- Draw / (Repay) LOC – owner’s draw repaid to the company / Lines of credit offered to consumers
- Notes Injected / (Repaid) – money borrowed short-term (less than 12 months)
- Loan Injection (Net of Fees) – money borrowed long-term (greater than 12 months)
- Equity Injection – owner funds infused into the business
Cash Outflow
Cash outflow refers to all your expenses. You’ll see I further divided them into three sections in the template. The first section is your cost of goods sold (COGS). You’ll also find these totals in the income statement. Here, like the revenue, you’ll only list the total almost, rather than the itemized details in the income statement.
Below the COGS, you’ll see all the expenses related to payroll. I like to keep these separate because often times employers AND EMPLOYEES fail to realize the additional benefits that come beyond a salary. There’s a cost to them, and it’s important to understand what those costs are. Again, you’ll have these numbers in the income statement.
Next you’ll find all the other expenses. Most of these numbers should be in your income statement. Simply care those over.
You’ll notice there are a few items that were not included in the income statement under cash outflow… the loans. Don’t worry about trying to put your loans here. At the bottom of the workbook, you’ll see a tab called loans. This is where you’ll put your loan information. Once you complete the loans tab, it’ll auto-populate your cash flow sheet.
More for another post, but to determine the amount you’ll need in loans, I suggest putting together an itemized list of your startup or expansion expenses. Use the balance sheet as a guide. I always tell my clients to come prepared with at least 10% of whatever their project costs are. Realistically though, banks typically will expect you to come up with more, and you’ll have to find other sources to make up the gap.
Next complete add your quarterly income tax amounts. Again, you’ll find this on your income statement. Finally, determine how much of an owner’s draw you plan to take. That is, how much do you plan to pay yourself. This section really only applies to sole proprietorships and limited liability companies. If you work for a corporation, you’re salary/wage would be in the employee section. However, a corporation might use this section to determine dividend amounts, since I didn’t add it in the template.
Change in Cash
This last section includes only pre-calculated fields based upon the information above it in the template. Let me tell you how to read it, as this is really is the summary of your cashflow.
Change in cash are your net profits for the month with a summary at the end of the year. In the example, you’ll see some of the numbers are red. This means the change in cash is negative… a net loss for the month. Though this is concerning, it’s not the end of the world, as there’s still money in the bank to continue to support the business.
You’ll see that money as the Ending Balance. This number should ALWAYS be positive. If it’s not positive, this means you’ve overdrawn somewhere or don’t have enough funds to pay your bills.
If you scroll to the top of the worksheet, you’ll notice I had to add some funds in the form of Equity Injection in order to make this cash flow sheet balance. If your business will take some time to start generating a positive cash flow and you can’t find a funding source for working capital, be prepared to inject some of your own cash into your business. You can do it as needed or even as one lump sum, as I’ve done in the example.
The Beginning Balance is what you have to start the month with. This is most important when you have bills coming due at various times of the month. If your beginning balance is $0, and you have a bill due at the beginning of the month, you might be in trouble. Just because you made it to the end of the month, doesn’t mean you’re home free.
And that pretty much sums it up.
What questions do you have about the cash flow statement?
Thank you for your detail explanation on the Cash Flow Statement. I have a question – if I have Bonuses for employees which category should I included them under? I was thinking Commissions but again that’s not really a commission. Also sick leave would fall under Employee benefits, correct? Thank you!
Good questions, Lena. For bonuses, you can do a couple of things. You can add the bonuses to the employee wages. If it’s important for you to see how bonuses specifically affect the cash flow outside of the regular wages, you might add a separate line item for bonuses. I’d still keep it in the same area as the wages though.
As far as sick leave goes, it’s not a monetary exchange of cash. As such, it doesn’t really belong in your cash flow statement or even your financial statements, for that matter. Even if an employee leaves your employment, they would likely not receive a cash out for sick leave.
Vacation time works similar to sick leave, in that you typically won’t find it on your financial statements. There is an exception. Employees usually get a pay out for unused vacation time when they leave employment. Likewise, those who take advance vacation can the amounts deducted from their last pay check. Again, you can include the deductions or payments in the regular wages. Or do something similar to my example with bonuses and create a separate line item.
Employee benefits are more on the lines of premiums for healthcare insurance paid by the employer or retirement distributions.
Hope that helps.
Very detailed. It was a very educational experience going through this I also tried all the links and everything seemed to work well. It is not a quick read by any means. There is just too much to cover. It is quite well done though. I had a little wish that the font was a little bigger for readability but the problem would be that it would inflate the size of everything. It is good to read something that makes things like this understandable.
Thank you for stopping by, Terrance. Often times, the Cash Flow statement is easier to manage after completing a profit & loss statement. Much of the information comes directly from the P&L. On a side note, you can adjust the font by pressing cmd and the + key on the mac or ctrl and the + on the PC.
Since font size differs from computer to computer, I find it best to use the default settings and let users decide for themselves on the font size.