Understanding Your Cash

A cash flow statement is a financial document that shows the movement of cash into and out of a company over a specific period of time, usually a month or a year. It is an important tool for startups, as it helps them understand the company's financial health and make informed decisions about its future.

The cash flow statement is divided into three main sections: cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities.

• Cash flow from operating activities: This section shows the cash that the company generates from its day-to-day operations, such as selling products or services. It includes items like revenue, cost of goods sold, and expenses.

• Cash flow from investing activities: This section shows the cash that the company generates from its investments, such as the sale of assets or investments in other companies.

• Cash flow from financing activities: This section shows the cash that the company generates from its financing activities, such as borrowing money or issuing new shares of stock.

The cash flow statement is important for startups because it helps them understand how they are generating cash and where they are spending it. By analyzing the cash flow statement, startups can identify areas where they are generating a lot of cash and areas where they are spending too much. For example, if the company is generating a lot of cash from its operations but spending a lot on investments, it may be time to reevaluate the investment strategy.

In addition to helping startups understand their financial health, the cash flow statement is also useful for forecasting future cash needs. By projecting future cash inflows and outflows, startups can plan for any potential shortfalls and take steps to address them.

In conclusion, cash flow statements are a valuable tool for startups to understand the financial health of their business and make informed decisions about its future. By regularly reviewing and analyzing cash flow statements, startups can identify areas for improvement and plan for future cash needs. Ask us how Next Door CFO can help you maximize your runway and extend your cash flow.