Cash flow statements are essential financial documents yhttps://i.imgur.com/qlQDP0X.pngou must prepare before asking for funds for your business. They give a clear view of how money moves in and out of your business. Lenders and investors use this info to see if you’re a good fit for financing.
What Is a Cash Flow Statement?
Cash flow statements are financial documents that show how much money comes in and goes out of a company over a specific time. They give an overview of the business’s cash movements during that time. Businesses get money from sales, which is incoming cash, and spend it on expenses, which is outgoing cash. These statements detail both the money coming in and going out.
The 3 Sections to Include in a Cash Flow Statement
A typical cash flow statement has three sections: operating activities, investment, and financial activities.
- The operating activities section covers the money coming in and going out from the company’s main operations, like sales and expenses.
- The investment section shows gains and losses from investments the company makes.
- The financial activities section displays cash movements between the business and its shareholders, creditors, or owners.
How Cash Flow Statements Impact Financing
Cash flow statements are often needed by lenders and investors when you’re trying to get funding for your business. Lenders want to make sure you can pay back the loan. If your cash flow statement shows a good balance between money coming in and going out, it gives them confidence. Having a strong cash flow makes it more likely you’ll get approved for a loan.
Investors also pay close attention to cash flow statements. Instead of borrowing money, you can fund your business by selling shares of ownership, which is called equity financing. Before investing in your company, most investors will check your plan, including your cash flow statements. So, make sure they’re in your business plan.
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