Running a small business comes with enough surprises. Your finances shouldn’t be one of them.
While most business owners know they should look at their income statement and balance sheet, many skip over one of the most important financial tools: the cash flow statement. If you’ve ever thought, “I made a profit this month, so why do I feel broke?”—this statement holds the answer.
This guide will walk you through the basics of the cash flow statement, why it matters, and how to use it to actually run your business with more confidence.
What Is a Cash Flow Statement?
In simple terms, the cash flow statement shows how cash actually moves in and out of your business over a specific period. Unlike your income statement (which is based on accrual accounting and includes non-cash items), the cash flow statement shows exactly what hit your bank account—and what left it.
Why This Matters
- You can be profitable on paper but still run out of money.
- Cash flow helps you pay your team, suppliers, taxes, and yourself.
- It shows whether your business is truly sustainable.
The 3 Sections of a Cash Flow Statement
Your cash flow statement is divided into three key sections:
1. Operating Activities
This is the cash coming in and going out from your core business operations.
Examples:
- Cash received from clients
- Payments to suppliers
- Payroll and wages
- Rent and utilities
“If this section isn’t positive over time, your business model isn’t sustainable.”
2. Investing Activities
This section covers cash used for or generated by investing in the long-term future of your business.
Examples:
- Buying or selling equipment
- Business property purchases
- Investing in other companies
These are usually larger, occasional cash movements, not part of your day-to-day.
3. Financing Activities
This is where you track how money flows in or out due to funding.
Examples:
- Loans received or repaid
- Owner contributions or draws
- Dividend payments
Financing tells you how your business is funded—and whether you’re taking on too much debt or drawing too much cash.
💡 Need help understanding how this applies to your business?
Apex Bookkeeping can walk you through your cash flow statement and show you where the money is actually going.
→ Book a free consultation and get clarity on your numbers today.
Real-Life Example: The Profit Illusion
Let’s say your business made a $20,000 profit in Q1, according to your income statement.
But during that same period:
- You paid off a $15,000 loan
- Bought $10,000 worth of new tools
- Had a few late payments from clients
Your cash flow for the quarter might actually be negative, even though you’re technically “profitable.”
This is how the cash flow statement fills the gap.
How to Use Your Cash Flow Statement
Here are 4 practical ways small business owners can actually use this tool:
1. Predict Short-Term Cash Crunches
Look ahead at expected payments and expenses. Will you have enough on hand to get through the month?
2. Understand Your Burn Rate
How much cash do you go through each month when sales are slower? This number is key for planning.
3. Make Confident Spending Decisions
Have the cash to invest in equipment? Or will it put you in the red?
4. Build a Buffer
Use surplus months to build up a cash reserve instead of overspending.
Want help building a cash flow plan tailored to your business? Book a free strategy call with Apex today.
Common Mistakes to Avoid
❌ Confusing Profit with Cash
Just because a sale is made doesn’t mean the cash is in your account.
❌ Ignoring Receivables
Late-paying clients can crush your cash flow. Monitor your aging receivables closely.
❌ Not Reviewing Monthly
Your cash flow statement is a living tool. Review it monthly (or even weekly).
❌ Forgetting Tax Obligations
Cash may look strong—but remember to set aside money for GST/HST, payroll deductions, and year-end tax.
Apex helps Canadian business owners stay ahead of surprise expenses and tax obligations.
How to Create a Cash Flow Statement
If you’re using accounting software like QuickBooks Online, this can usually be generated with a few clicks.
But even a simple spreadsheet works. Here’s how:
Step 1: List starting bank balance.
Step 2: Add all cash received (customer payments, loans, investments).
Step 3: Subtract all cash paid (expenses, debt payments, owner draws).
Step 4: Ending cash = Starting cash + Inflows – Outflows
Final Thoughts
Your cash flow statement isn’t just another report. It’s a vital decision-making tool that helps you:
- Avoid panic at payroll time
- Know when to invest
- Build a sustainable business
Ready to Master Your Business’s Cash Flow?
Whether you’re struggling to keep your head above water or just want a clearer picture of your financial health, understanding your cash flow is the first step.
👉 Let Apex Bookkeeping help you make sense of the numbers and set your business up for confident growth.
Schedule your free intro call now — your future self will thank you.