A business can be profitable on paper and still struggle to pay its bills. That's because revenue doesn't always mean cash has been collected, and expenses don't always result in immediate cash payments. A cash flow statement helps you understand how money moves in and out of your business over a specific period.

Our free cash flow statement template in Excel makes it easier to track cash from operating, investing, and financing activities. I'll walk you through how to complete the template and explain what the numbers mean.

Why you can trust Fit Small Business

I've spent several years managing bookkeeping, financial reporting, and cash flow for small businesses, including US-based clients. I also prepare monthly cash flow reports to help the owners determine when additional funding may be needed to cover upcoming payables. Part of my responsibility is staying on top of accounts receivable collections to make sure we have enough cash for payroll, rent, utilities, subscriptions, and other operating expenses.

My experience includes:

• Preparing monthly cash flow reports to support financial planning and funding decisions
• Monitoring cash balances and upcoming payables to anticipate potential cash shortages
• Managing accounts receivable and following up on collections to maintain sufficient operating cash
• Handling full-cycle bookkeeping, bank reconciliations, and financial reporting for US-based businesses
• Using QuickBooks Online, QuickBooks Desktop, and Xero to manage financial records and generate reports

JR Suralta

Certified QuickBooks Online ProAdvisor and Certified Xero Advisor

Download our free cash flow statement template (Excel)

You don't need accounting software to prepare a cash flow statement. Our free Excel template helps you organize your business' cash movements and calculate how much cash you generated or used during a reporting period.

The template follows the indirect method, which starts with net income and adjusts for noncash expenses and changes in working capital. It separates cash movements into three categories: operating, investing, and financing activities.

What's included in the template?

Who should use this template?

This cash flow template is particularly useful for small business owners and freelancers who maintain their books in Excel, as well as bookkeepers preparing financial reports for clients.

It's also helpful if you use accounting software like QuickBooks Online but want to review cash flow movements separately, compare monthly results, or better understand how changes in your balance sheet affect your cash position.

Important: Before completing the template, make sure your bank accounts are reconciled, and your financial records are up to date. Otherwise, the statement may calculate correctly but still produce misleading results because the underlying figures are inaccurate.

What is a cash flow statement?

A cash flow statement is a financial report that shows how much cash comes into and goes out of your business during a specific period, such as a month, quarter, or year. Along with the balance sheet and income statement, it's one of the three primary financial statements used to evaluate a business's financial health.

Unlike an income statement, which measures profitability, a cash flow statement focuses on actual cash movements. It helps you determine whether your business generates enough cash to cover operating expenses, repay loans, purchase equipment, and support future growth.

A cash flow statement organizes these movements into three activities:

• Operating activities: Cash generated or used in day-to-day business operations, including customer collections, supplier payments, and payroll.
• Investing activities: Cash spent on or received from purchasing and selling long-term assets, such as equipment, vehicles, and property.
• Financing activities: Cash received from borrowing or owner investments and cash paid toward loan principal, distributions, or dividends.

How to prepare a cash flow statement using our Excel template

Preparing a cash flow statement is easier when your bookkeeping records are accurate and up to date. Our Excel template uses the indirect method, which starts with net income and makes adjustments for noncash expenses, changes in working capital, and cash flows from investing and financing activities.

I'll use a small service business as an example throughout the steps so you can see where each figure comes from and how it affects the final cash balance.

You can follow along using the template and enter your own figures as you complete each step.

Step 1: Gather your financial records

Before entering anything into the template, you'll need your income statement and comparative balance sheets for the reporting period. These reports provide most of the figures needed to calculate your cash flows.

Here's what to prepare:

For example, if you're preparing a cash flow statement for September, you'll need the September income statement and balance sheets dated August 31 and September 30.

If you use accounting software like QuickBooks Online Advanced, you can generate the income statement, balance sheets, and Statement of Cash Flows report directly from your accounting records. You can also export these reports to Excel, although you may still need to review individual transactions to verify equipment purchases, loan activity, and other adjustments.

Step 2: Enter your beginning cash balance

Open the Excel template and enter the beginning cash balance for your reporting period. This should match the previous period's ending cash and cash equivalents balance.

For example, suppose your business had the following balances on August 31:

Enter $17,500 in the Beginning cash balance field.

Include qualifying cash equivalents where applicable, but don't include accounts receivable, inventory, or other assets that aren't cash or cash equivalents.

Step 3: Calculate cash flows from operating activities

Start with net income from your income statement. Then adjust it for noncash expenses and changes in operating assets and liabilities.

For example, suppose your business reported $10,000 in net income during September.

The template calculates the operating cash flow after you enter the relevant figures.

To determine changes in working capital accounts, subtract the beginning balance from the ending balance.

For instance, if accounts receivable increased from $7,000 to $10,000, the $3,000 increase is deducted from net income because that portion of recorded revenue hasn't been collected in cash.

The treatment depends on the account:

These rules apply to ordinary operating balances. You'll need to exclude noncash transactions and reclassify balances related to investing or financing activities when appropriate.

Step 4: Record cash flows from investing activities

Next, enter cash payments and receipts related to long-term assets and investments.

Suppose your business purchased office equipment for $4,000 in cash during September and didn't sell any assets.

Enter the $4,000 equipment purchase as a cash outflow.

If you purchased equipment using financing instead of paying cash, don't record the entire purchase as an investing cash outflow. Only actual cash paid belongs in the statement. Material noncash investing and financing transactions are disclosed separately under applicable accounting standards.

Step 5: Record cash flows from financing activities

Financing activities include cash received from borrowing or owner contributions and cash paid toward loan principal, distributions, or dividends.

Suppose your business received a $6,000 loan and repaid $2,000 in existing loan principal.

Enter the loan proceeds as a positive amount and the principal repayment as a negative amount.

Be careful when using loan statements. If your monthly loan payment includes both principal and interest, separate the two amounts. Under US GAAP, interest paid is generally classified as an operating cash flow, while principal repayment is a financing cash flow.

Step 6: Calculate the net change in cash

Once you've completed all three sections, the Excel template automatically adds the net cash flows from operating, investing, and financing activities.

Using our September example:

The basic calculation is:

Net change in cash = Operating CF + Investing CF + Financing CF

Then:

Ending  cash = Beginning cash + Net change in cash

These calculations assume there are no additional reconciling items, such as exchange-rate effects on foreign-currency cash balances.

Step 7: Reconcile your ending cash balance

The final step is to confirm that the ending cash balance calculated by the template agrees with the cash and cash equivalents reported on your ending balance sheet.

For our example, the Excel template calculated an ending cash balance of $27,500. If the September 30 balance sheet also reports $27,500, the cash reconciliation difference should be zero.

If the amounts don't match, review your beginning cash balance, working capital adjustments, loan transactions, equipment purchases, and any missing or duplicated cash movements.

The template includes an automatic reconciliation check that flags any difference between the calculated ending cash and the balance sheet figure.

Cash flow statement example for a small business

Let's look at a completed cash flow statement for a small service business. Suppose the company earned $10,000 in net income during September but also had outstanding customer invoices, purchased new equipment, and took out a business loan.

Using the indirect method, here's what its cash flow statement would look like.

Sample cash flow statement

What does this cash flow statement tell us?

My analysis:

• Operating cash flow: The business generated $10,000 in cash from its regular operations, which is encouraging. However, the $3,000 increase in unpaid customer invoices deserves attention. If receivables continue growing, the business could face cash shortages despite reporting consistent profits.
• Investing activities: The $4,000 equipment purchase reduced available cash, but it may be worthwhile if the equipment improves productivity or helps the business serve more customers.
• Financing activities: The business received $6,000 in loan proceeds and repaid $2,000 in principal. While financing added $4,000 to its cash balance, this isn't money earned from customers, and the loan creates future repayment obligations.
• Overall cash position: The business ended September with $27,500 in cash, up from $17,500. That's a positive result, but I'd still monitor whether operating cash flow can consistently cover expenses, equipment needs, and debt repayments without additional borrowing.

My take: I wouldn't judge a business's financial health based on one month's ending cash balance alone. I'd compare several months of operating cash flow, review outstanding receivables, and check upcoming payment obligations.

How to analyze your cash flow statement

To analyze your cash flow statement, start by reviewing cash generated from operating activities, identifying major cash outflows, and checking how much your business relies on financing. Compare these figures over several months to spot trends, identify potential cash shortages, and determine whether your business generates enough cash to cover its financial obligations.

1. Check your operating cash flow

Start by checking whether your regular business operations generate positive cash flow. For example, if your business reports $15,000 in net income but only $4,000 in operating cash flow, the difference could be due to unpaid customer invoices, inventory purchases, or supplier payments.

Consistently negative operating cash flow may indicate collection problems, rising expenses, or difficulty sustaining day-to-day operations.

2. Review major cash outflows

Negative cash flow isn't always a bad sign. A business spending $20,000 on new equipment may report negative investing cash flow, but the purchase could improve productivity and support future growth.

What matters is whether these expenditures are necessary, affordable, and likely to benefit the business.

3. Check your reliance on financing

A growing cash balance doesn't necessarily mean your business is performing well. Consider this example:

Business B increased its cash by $20,000, but that increase came entirely from financing while operations consumed cash. Business A generated enough operating cash to cover its investing and financing outflows.

This is why I recommend checking whether cash growth comes from business operations or additional borrowing.

4. Look for recurring cash flow problems

Compare several months of cash flow statements to identify trends. Declining operating cash flow could indicate slower customer payments, increasing expenses, or excess inventory purchases.

Use these findings to improve collections, plan major purchases, manage debt repayments, and prepare a cash flow forecast for upcoming expenses.

Your cash flow statement shows what already happened, but it won't tell you whether you'll have enough cash next month. To plan ahead, read our cash flow forecasting guide to learn how to estimate upcoming receipts, payments, and potential cash shortages.

Common cash flow statement mistakes to avoid

When preparing your cash flow statement, watch out for errors that can affect the accuracy of your calculations and give you a misleading picture of your business's cash position:

• Confusing revenue with cash received: Under accrual accounting, you record revenue when earned, even if the customer hasn't paid. Under the indirect method, changes in accounts receivable adjust net income to account for uncollected revenue.
• Incorrect working capital adjustments: An increase in accounts receivable or inventory generally reduces operating cash flow, while an increase in accounts payable generally increases it. Reversing these adjustments can distort your results.
• Treating loan proceeds as income: Business loans increase cash but aren't revenue. Record loan proceeds and principal repayments under financing activities.
• Recording noncash expenses as cash payments: Depreciation and amortization reduce net income without using cash during the reporting period. Add these expenses back when calculating operating cash flow using the indirect method.
• Misclassifying equipment purchases: Cash spent on equipment, vehicles, or other long-term assets generally belongs under investing activities, not operating activities.
• Failing to reconcile ending cash: The ending cash balance should match the cash and cash equivalents on your balance sheet. Investigate discrepancies instead of entering adjustments simply to make the figures balance.

Frequently asked questions (FAQs)