How to Make a Cash Flow Statement Template

A positive net income doesn't always mean a healthy bank account, and understanding this difference is the key to managing your business's finances effectively. That's where the cash flow statement comes in, offering a clear picture of exactly where your money is coming from and where it's going. This guide will walk you through building a reusable cash flow statement template from scratch, helping you gain a true understanding of your company's financial pulse.

What a Cash Flow Statement Actually Shows You

The cash flow statement, or statement of cash flows, is one of the three core financial statements, alongside the balance sheet and income statement. While your income statement can show a profit, that profit can be tied up in things like unpaid customer invoices (accounts receivable) or unsold products (inventory). The cash flow statement cuts through these accruals to show the actual cash that moved into and out of your business over a specific period.

This information is broken down into three main categories:

• Operating Activities: Cash transactions related to the principal revenue-producing activities of your business. This is the cash generated from your day-to-day operations.
• Investing Activities: Cash used to purchase or sell long-term assets, such as property, equipment, or other business investments.
• Financing Activities: Cash transactions with owners and creditors, like taking out a loan, repaying debt, issuing stock, or paying dividends.

Most small businesses use the indirect method to prepare their cash flow statement because it starts with net income—a figure you already have from your income statement—and adjusts it to find your net cash flow. This is the method we'll use to build our template.

Step 1: Gather the Necessary Financial Documents

Before you can begin building the template, you need the right raw materials. Accurate cash flow analysis depends on having a complete set of financials for the period you're examining (e.g., a month, quarter, or year).

You will need three specific documents:

• The Income Statement (P&L): This provides your starting point, Net Income, for the period you are analyzing.
• The Beginning-Period Balance Sheet: This is the balance sheet from the end of the previous period. For example, if you're creating a statement for April, you'll need the balance sheet from March 31st.
• The End-Period Balance Sheet: This is the balance sheet from the end of the period you are analyzing. In the April example, this would be the balance sheet from April 30th.

Why two balance sheets? The cash flow statement reconciles net income (from the P&L) with the change in your cash balance (from the balance sheets). Comparing the beginning and ending balance sheets reveals the changes in your asset, liability, and equity accounts, which are the core drivers of the adjustments you'll make to net income.

Step 2: Building Your Cash Flow Template (Indirect Method)

Open a spreadsheet and set it up with columns for the description, the dollar amount for the period, and maybe a "Notes" column for yourself. We'll build this line by line, section by section.

Cash Flow from Operating Activities

This is the most involved section, but it gives you the clearest view of your business's operational health. You start with net income and make two types of adjustments: for non-cash expenses and for changes in working capital.

1. Start with Net Income

Your first line item is simply "Net Income." Pull this directly from the bottom line of your income statement for the period.

2. Add Back Non-Cash Expenses

Your income statement includes expenses that don't actually involve a cash payment. We need to add these back to net income. The most common is:

• Depreciation and Amortization: This is an accounting expense that spreads the cost of a long-term asset over its useful life. No cash leaves your account when you record depreciation, so you must add it back. Look on your income statement or fixed asset schedule for this amount.

3. Adjust for Changes in Working Capital

Working capital refers to your current operating assets and liabilities. To find these changes, you'll compare your beginning and ending balance sheets. The logic here can seem counterintuitive at first, so read carefully:

• Changes in Current Assets (mostly Accounts Receivable and Inventory):
  • An increase in an asset account is a use of cash. For example, if Accounts Receivable goes up, it means customers owe you more money, and that's cash you haven't yet collected. You subtract the increase from net income.
  • A decrease in an asset account is a source of cash. If inventory goes down, it means you sold goods and likely converted them to cash. You add the decrease back to net income.
• Changes in Current Liabilities (mostly Accounts Payable and Accrued Expenses):
  • An increase in a liability account is a source of cash. If your Accounts Payable goes up, it means you've held onto your cash instead of paying your suppliers. You add the increase to net income.
  • A decrease in a liability account is a use of cash. If your Accounts Payable goes down, it means you used cash to pay off your bills. You subtract the decrease from net income.

Add up everything from Net Income down to these adjustments. The total is your Net Cash from Operating Activities. For a healthy business, this number should consistently be positive.

Cash Flow from Investing Activities

This section is usually simpler. It tracks cash spent on or received from the sale of long-term assets that help the business operate, such as property, vehicles, or large equipment.

Common line items include:

• Purchase of Property, Plant, and Equipment (PP&E): If you bought a new server or a company truck, the cash you paid is recorded here as a negative number (a cash outflow).
• Proceeds from Sale of PP&E: If you sold an old asset, the cash you received is recorded here as a positive number (a cash inflow).

Summing these lines gives you your Net Cash from Investing Activities. For growing businesses, this number is often negative as they invest in assets to expand.

Cash Flow from Financing Activities

This final section deals with cash flows between the company and its owners and creditors.

The most common financing activities are:

• Proceeds from Debt: If you took out a bank loan or line of credit, the cash received is a positive number.
• Repayment of Debt Principal: Cash used to pay down the principal amount of a loan is a negative number. Note: The interest portion of the payment is an operating expense and is already accounted for in your Net Income.
• Owner Contributions / Issuance of Stock: Cash invested into the business by its owners is a positive number.
• Owner Draws / Payment of Dividends: Cash paid out to owners is a negative number.

Total these items to calculate your Net Cash from Financing Activities.

Step 3: Putting It All Together and Verifying Your Work

Now you can finalize your statement. The last few lines on your template should do two things: calculate the overall change in cash and ensure that your statement balances correctly.

1. Calculate the Net Change in Cash

Add the totals from your three sections together:

(Net Cash from Operating Activities) + (Net Cash from Investing Activities) + (Net Cash from Financing Activities) = Net Change in Cash for the Period

This final number tells you if your total cash position increased or decreased over the period.

2. Reconcile Your Cash Balance

This is the moment of truth. This final check confirms your statement is accurate.

Take your Net Change in Cash for the Period and add it to the cash balance from your beginning-period balance sheet.

Net Change in Cash + Beginning Cash Balance = Calculated Ending Cash

The result, Calculated Ending Cash, must equal the cash balance shown on your end-of-period balance sheet. If it matches, congratulations—your cash flow statement is balanced and complete! If not, it's time to double-check your calculations, especially the signs (+ or -) for your working capital adjustments.

Using Accounting Software to Automate the Process

Building a cash flow statement template by hand is an excellent way to truly grasp the mechanics of your business's finances. You learn how profit converts (or fails to convert) to cash. Once you understand the process, you can save significant time by using accounting software, which generates this statement automatically.

Tools like QuickBooks Online, Xero, and Wave pull directly from your transaction records to create an accurate cash flow statement in seconds. Because they do the heavy lifting, you can spend less time on calculations and more time analyzing the results. The manual template you've built gives you the confidence to interpret what the software is telling you about your business's financial story.

Final Thoughts

Building and maintaining a cash flow statement is an indispensable discipline for any business. The template provides a systematic way to look beyond reported profits and understand your real cash position, empowering you to make smarter decisions about expenses, investments, and growth.

As you analyze your financials, you might discover complex questions, such as the tax rules around depreciating a new asset or the state-specific implications of your recent financing activities. We built Feather AI to provide instant, citation-backed answers to these very questions, enabling you to move from analysis to confident action without getting stuck on painstaking research.