How to Create a Cash Flow Statement (Step by Step Guide)

Running your business without tracking cash flow? That’s like pouring water into a leaky bucket, and wondering why your plants aren’t growing. 

Whether you're a creative, coach, consultant, or one-person powerhouse trying to make sense of your business finances, understanding your cash flow is a must, not a maybe. And no, you don’t need an accounting degree (or a spreadsheet obsession) to figure it out.

Let’s break down how to create a cash flow statement from scratch, in plain English, with real-life relevance and just the right amount of cheeky encouragement. Ready? Let’s get that flow flowing.

What Is a Cash Flow Statement, Anyway?

Think of a cash flow statement as a financial GPS for your business. It tells you where your money is coming from, where it's going, and what’s left to work with. Unlike your profit and loss statement (which includes “paper profits”), cash flow is about real cash; what’s actually in your account.

It’s one of the three big players in financial reporting, alongside:

• Income Statement (shows profits/losses)

• Balance Sheet (shows assets, liabilities, and equity)

• Cash Flow Statement (shows movement of cash)

Why Does Cash Flow Matter for Solopreneurs?

Here's the TL;DR: Cash is queen. No matter how much profit you should be making, if there’s no cash in the bank, you can’t pay yourself, your bills, or reinvest in growth.

It helps you:

• Spot if you're running out of money before it's too late

• Show banks or investors you’re legit

• Understand if you're actually profitable (or just busy)

• Plan for taxes, expenses, and big moves

Bottom line? No cash, no business. Period.

What Goes Into a Cash Flow Statement?

Every cash flow statement has three core sections:

1. Operating Activities

Day-to-day money moves, like:

• Cash from sales or services

• Payments to suppliers

• Rent and utilities

• Salaries (even if it’s just you)

2. Investing Activities

Big-picture moves:

• Buying or selling equipment

• Purchasing property

• Making business investments

3. Financing Activities

Money that funds or finances your biz:

• Loans or repayments

• Owner investments or withdrawals

• Issuing shares (if that’s your thing)

How to Create a Cash Flow Statement (The Beginner’s Guide)

Let’s get into the nitty-gritty, without the finance fog.

Step 1: Choose Your Method

You’ve got two options:

• Direct Method: Lists every cash transaction (great but tedious)

• Indirect Method: Starts with net income and adjusts for non-cash items (easier and more common)

We’re using the indirect method here.

Step 2: Gather Your Financial Info

Pull these together:

• Income statement

• Balance sheet (start and end of the period)

• Cash receipts and payments

Google Sheets or Excel can do the trick, no fancy software needed (unless you're using Cashflowy, of course).

Step 3: Start With Net Income

Example:
Net Income = $10,000

Step 4: Adjust for Non-Cash Expenses

Add back things like:

• Depreciation

• Amortization

Why? These reduce your net income but not your actual cash.

Example:
Depreciation = $1,500
Adjusted Income = $11,500

Step 5: Adjust for Changes in Working Capital

Track changes in:

• Accounts Receivable (A/R)

• Accounts Payable (A/P)

• Inventory

Rule of thumb:

• A/R goes up → cash goes down

• A/P goes up → cash goes up

Step 6: Add Investing and Financing Activities

Include cash used/received for:

• Buying/selling assets

• Loans taken or repaid

• Owner contributions or withdrawals

Step 7: Calculate Net Cash Flow

Add your beginning cash balance to get your ending cash balance.

Sample Cash Flow Statement Format

Common Cash Flow Mistakes to Avoid

• Confusing cash flow with profit (don’t do it!)

• Forgetting non-cash expenses like depreciation

• Ignoring financing/investing sections

• Not reconciling with your bank statements

Pro Tips to Make Cash Flow Easier

• Use tools like Cashflowy to track income, expenses, and insights automagically

• Track weekly, not just monthly

• Automate your bank feeds

• Use templates (like Vertex42’s or Cashflowy’s dashboards)

What About the Direct Method?

If you’re curious or need it for reporting, here’s what it looks like:

It’s simple but requires detailed transaction tracking.

FAQs

Q: Do I need a cash flow statement if I’m a freelancer or solopreneur?
A: 100%. It’s your financial flashlight—it shows what you actually have to work with.

Q: How often should I create one?
A: Monthly is best. Quarterly at the very least.

Q: Profit vs. Cash Flow—what’s the difference?
A: Profit can be misleading (includes non-cash items). Cash flow shows the real money.

Q: Can I DIY in Excel or Google Sheets?
A: Totally. Or use tools like Cashflowy to make life easier and get your time back.

Final Thoughts (a.k.a. Why This Actually Matters)

Creating a cash flow statement isn’t about being “good with numbers.” It’s about being in control. Whether you’re making $500 a month or scaling to six figures, cash flow clarity is a power move you can’t skip.

And hey, if you’d rather not DIY it all? Let Cashflowy handle the heavy lifting.

Try Cashflowy free today and get back to doing what you love while your money flow stays crystal clear.