As a small business owner, cash is key to understanding your business’s present and future. Understanding where your cash is coming from and where it’s going is the foundation for informed decision making. Completing a common financial statement--a cash flow analysis--is the missing piece of the puzzle when it comes to gaining insight on your financial health.

Managing net cash flow consistently proves to be challenging for many business owners. To provide your products or services to your customer base, you need to have an amount of cash at hand. In periods of growth, having resources to fuel your investments bodes well for the future of your company.

No successful company can operate without enough cash reserves, and it’s important to accurately understand your business’s cash position over a period of time to operate healthily. Read on to learn how to do a cash flow statement using QuickBooks accounting software. 

What is a cash flow analysis? 

A cash flow analysis provides an accurate view into your company’s finances and contains three main sections: operating activities, investing activities and financing activities. The cash flow analysis (a.k.a. cash flow statement) displays your company’s cash receipts and outflows for a specified time period and is connected to the balance sheet and the income statement. By routinely reviewing your operating cash flow statements, you have the power to make smarter budgeting decisions with a newfound knowledge of your financial situation. These insights on money in v. out will give you guidance on how to manage your money more efficiently.

When would you use a cash flow analysis? 

Cash flow analyses are helpful for investigating and understanding unexplained differences between net income and activity in the company’s cash account. These differences often occur when a business utilizes the accrual method of accounting. While the cash flow analysis is the primary financial tool for managing cash inflows and cash outflows, some businesses also use free cash flow to assess indicators of business performance. You may also want to consider Purchase Accounting Adjustments when completing a cash flow analysis, which are relevant when recording inventory, fixed current assets, and intangible current assets at fair value.

How to do a cash flow analysis

When looking to prepare a cash flow analysis of your own to gain context around your company’s finances, there’s an easy way to view your cash flow statement. To complete a cash flow analysis in QuickBooks:

• Go to Reports.

• In the Search field, enter Statement of Cash Flows.

• Select the Statement of Cash Flows item to open the report.

• (Optional) Select Customize to change any of the settings for the report, if necessary. For example, you can change the Report period to show a wider or narrower date range.

• Select Run report.

What do you learn about your business from a cash flow analysis? 

After completing and analyzing the statement of cash flows, you’ll have a better idea of your business’s liabilities and short-term incoming and outgoing cash, along with an idea of how much you’ll need in the future for different ventures and opportunities. 

Each section of the cash flow statement reveals valuable information on your business that you can use to make decisions on business expenses, depreciation, capital expenditures, net income, growth, profitability, and other areas of business revenue. The statement of cash flows explores cash flows from operations, investing, and financing; while providing insight into what you need to do to generate more revenue over time, to generate necessary profit, and control unsustainable spending.

By completing a cash flow analysis, you’ll gain insight to different ways you can grow and improve your business. A cash flow analysis can help you determine where you’re spending too much and where you’re not seeing enough returns. When you have an accurate forecast of future cash needs, you can focus on growing cash flows from operations to maintain the amount of cash flow your business requires to thrive. 

What to consider after completing your cash flow analysis

• How does our cash flow align with our goals for the next six months, year, and five years?
• What areas of cash flow would you like to focus on growing?
• What assets and liability are affecting your business finances?
• Which activities are providing the most cash flow: operating, investing, or financing? 
• What methods do we want to take to increase cash collections?

Next steps

QuickBooks can help you manage your small and mid-sized business finances and easily generate automated reports like cash flow analyses to show you the bigger picture. Automate your business and free up time to focus on growth by using easily accessible reporting templates to gain insight on your company’s cash flow projections. Explore what QuickBooks solution best fits your needs and gain a better look into your business operations.