• October 23, 2025
• By Rick Arthur
• In cash flow forecasting, Financial Statements, Statement of Cash Flows
• No Comment
• 9
• Tagged: cash flow forecasting Statement of Cash Flows

Accurate, timely data from your financial statements provides the solid basis business owners need to make critical business decisions that can have far-reaching effects on their company and its future. Yet owners I work with often share that their understanding of how to read, interpret, and apply the information from their financials to decision-making could use a boost.

Three financials are foundational to effective decision-making: the income statement, balance sheet, and the third, the Statement of Cash Flows, which we’ll explore here.

Often considered the most essential financial document, and one that many companies don’t produce, the Statement of Cash Flows illustrates how cash moves through your business from operations to investing and financing.

Here are three ways the Statement of Cash Flows can contribute to making informed decisions:

1. Cash Flow from Operations

The first section of the Statement of Cash Flows provides a reconciliation of Net Income to cash flow provided from operations by analyzing the differences in Current Assets and Current Liabilities for the time period covered by the statement. If this number is negative for several periods, it’s an indication that you might need to seek financing or an injection of cash to have sufficient working capital to run your business.

2. Planning for Growth

The second section of the Statement of Cash Flows identifies how much you are investing in fixed or other long-term assets to grow your business. This is typically a negative number since your cash is being invested in your business. Financing related to purchasing these assets is reflected in the last section of the Statement of Cash Flows. Understanding the impact of spending cash to grow your business by acquiring additional, long-term assets in concert with the cash flow from operations is critical. Negative cash flow from operations plus negative cash flow from investing can be a recipe for disaster and an indication that you need to make some changes.

3. Obtaining Credit and Funding Debt

The last section of the Statement of Cash Flows identifies your financing activities – both borrowing and paying long-term liabilities. Often a business owner does not know how much cash is needed to service the company’s long-term debt – information that the cash flow statement provides. In addition, amounts distributed or contributed to Equity will be included in this section. Understanding how your financing activities are impacting cash will provide insight into whether you can take on additional debt to fund your investing activities.

Cash Flow Forecasting

Take another step to prevent being blindsided by unexpected swings in cash flow. Learn to forecast cash flow and do it regularly. It will be invaluable, not only in guiding you to success, but in measuring your progress.

Cash flow is always a priority no matter what else is trending – you can run a business at a loss but not without cash. The Statement of Cash Flows is a measure of how much cash you are generating from operations to invest in your business and service your long-term debt. It is a critical tool for managing finances and making informed business decisions.

Cash flow forecasting is one of the most valuable tools a business owner can have, but also one that many business owners don’t utilize. To help bridge that gap, I created a three-part series of videos, How to Take Control of Cash Flow with Forecasting, that concisely address important aspects of cash flow including how to prepare a cash flow forecast:

Part 1 – What is Cash Flow and Why is It Important?

Part 2 – The Difference Between Profit and Cash Flow

Part 3 – How to Prepare a Forecasted Cash Flow

I invite you to watch these brief videos then contact me for a complimentary one-on-one discussion of your unique needs and concerns around cash flow and forecasting.