The Statement of Cashflows: How Money Moves Through Your Business

tammyscarborough
Jun 2
3 min read

Updated: Jul 6

Profit shows potential. Cash flow shows reality.

Introduction

At Ledgers & Logic, we often meet business owners who are baffled by a painful reality: “I’m profitable on paper, but I never seem to have enough cash.” That’s because profit and cash flow aren’t the same thing — and understanding the difference is key to running a business that doesn’t just look good on reports but actually works in real life.

The Statement of Cash Flows shows how money actually moves in and out of your business. Unlike the Profit & Loss Statement or the Balance Sheet, it tracks the timing and sources of cash — so you know if your business can meet its obligations today, not just theoretically in the long term.

What Is the Statement of Cash Flows?

The Statement of Cash Flows is one of the core financial statements used to assess the financial health of your business. It reports all the cash that has come in and gone out during a specific period — organized into three categories:

Operating Activities: Cash generated from your normal business operations (e.g., customer payments, payroll, rent)
Investing Activities: Cash used for buying or selling long-term assets (e.g., equipment purchases, selling a vehicle)
Financing Activities: Cash that flows between you and your investors or lenders (e.g., loan proceeds, debt repayment, owner draws)

Each of these sections tells a different part of your cash story.

Why It Matters: The Cash Flow Reality Check

The Statement of Cash Flows shows the real liquidity of your business — not just what you’ve earned on paper. You may be profitable and still run out of money if too much is tied up in unpaid invoices, slow-moving inventory, or fixed assets.

It answers questions like:

Are you bringing in more cash than you’re spending?
Can you cover payroll, rent, and debt this month?
Where is your cash really going?

Understanding your cash flow helps protect your business from one of the top reasons small businesses fail: running out of money.

What the Cash Flow Statement Tells You (That the P&L and Balance Sheet Don’t)

While the P&L tracks profitability and the Balance Sheet shows financial position, the Statement of

Cash Flows reveals:

The timing of income and expenses
Whether your profits are being collected in cash
If you’re self-funding or relying heavily on financing
Whether business activities are producing enough cash to sustain operations

It’s the only statement that focuses entirely on actual cash in hand.

How Often Should You Review It?

You should review your cash flow statement:

Monthly: To monitor real-time liquidity and catch red flags early
Quarterly: To analyze trends and adjust cash reserves or payment cycles
Before major decisions: Like hiring, investing in equipment, or expanding

In cash-sensitive industries, weekly or even daily cash flow forecasting may be helpful.

What to Watch For

When reviewing your Statement of Cash Flows, pay attention to:

Net cash from operating activities: This should generally be positive over time
Cash burn rate: Are you spending more than you bring in?
One-time spikes: From loans, owner contributions, or asset sales that mask poor operations
Consistency: Does cash flow follow your seasonal or sales trends?

Watch for patterns that may indicate deeper issues — like consistently negative cash flow from operations or heavy reliance on debt.

Why This Matters for You

If your business has ever felt tight on cash despite “making money,” you already understand the importance of this report. Cash flow is what pays the bills, funds growth, and keeps your business moving.

Understanding your Statement of Cash Flows:

Helps you plan for slow periods and avoid surprises
Prevents over-investing before you’re ready
Protects your ability to make payroll, pay taxes, and cover rent
Builds confidence with lenders and investors who want to see healthy, predictable cash movement

It’s not just about survival — strong cash flow is the foundation for scaling sustainably.