Cash flow statement

What is cash flow?

Cash flow is the net amount of cash and asses being transferred into and out of a business. A cash flow statement can be used to estimate your expected net profit or how much money you will actually make.

Before we get started, copy the Cashflow Projections template to your Google Drive and start filling it out.

How do I use a cash flow statement?

As you start to make your products or offerings and as you start making real sales, you’re going to need to keep track of the money that’s going in and out. Our cash flow statement will help you track how much money you’ll spend to make your products or services, how much you’ll spend to run your business and how much you’ll make from sales in order to estimate how much money you will actually make. It will help you track your revenue, cost of goods sold (or COGS), overhead costs, gross profit and net profit, the important stuff.

  • Revenue refers to how much money you expect to make by selling a specific number of products or services.

    • For example, if you sell 100 shirts in one month for $20 each, your revenue is $2000.

  • Cost of goods sold refers to how much it costs to make your product. Don’t forget to include your startup costs and anything else that’s costing you money.

    • For example, if each shirt costs you $5 to make and you've made 100 shirts, your COGS is $500.

  • Overhead costs refers the cost it takes to keep your business running like office supplies, rental fees, equipment rentals, fees to apply for a business permit, etc.

    • For example if office supplies cost you $200 per month and your website’s monthly fee is $25, your overhead costs are $225.

  • Gross profit is calculated by subtracting your COGS from Revenue.

    • For example, if your Revenue is $2000 and your COGS is $500, then your Gross Profit is $1500.

  • Net Profit can be calculated by subtracting Overhead from Gross Profit. This is your "real" profit as it is how much you're making in revenue, minus how much it costs you to run your business.

    • In this example, if your Gross Profit is $1500 and your overhead is 225, your net or “real” profit is $1225.

A good rule of thumb is to keep your startup costs as low as possible.

Why are cash flow statements important?

Cash flow statements provide a snapshot of how your business is doing. Positive cash flow indicates that your business is successfully making you money, which is typically the end goal for a startup. Negative cash flow indicates that it might be costing too much to make your products or services or that the costs to run your business might be too high.

Pro Tip

Once you have an idea of how much it costs to make your products (or services) and an estimate of what your overhead costs will be, you can use a cash flow statement to figure out how much you need to sell in order to make your desired profit.

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