Example of a Cash Flow Statement for Startup Business

What Is A Cash Flow Statement

A cash flow statement is a document that highlights the cash inflows and outflows of a business to enable each cash management. It records incomes and expenses when they are received or paid as opposed to when they become due. It is one of three essential financial statements for any company, the other  two being Balance Sheets and Profit and Loss Accounts. 

A cash flow statement is a compulsory document to file with the Accounting and Corporate Regulatory Authority (ACRA). However, it serves a purpose way beyond regulatory requirements. A cash flow statement for startups is an essential tool to ensure continued success.

As we serve startups across Southeast Asia, we observe cash flow problems to be a recurring issue for young and budding companies. In fact, liquidity and cash flow issues have been highlighted as one of the main reasons why startups fail. A well-constructed cash flow statement helps with efficient cash flow management for startups.

1. Where Is The Money Coming From? 

A big challenge for startups is to track the source of funds. As a startup, founders get so caught up in the success of the business that they fail to track cash flows. As a result, the different sources of funds are often missed. If you are making more money from investment returns than revenue, your business is not on the right path. You should be able to identify this and make changes. A cash flow statement can help you with this. 

2. Are Your Suppliers Getting Paid? 

Startups usually don’t have the wherewithal of big companies. This means that purchasing goods on credit becomes a problem. Often, you may have to pay your suppliers up front. However, if you spend all your cash flow on supplier payments, you may not have much money left for other important tasks like marketing or paying employees. Smart cash flow management for startups ensures that you are able to manage your payments to keep all stakeholders happy. 

3. How Are Investors Feeling? 

A strong cash flow statement for startups helps keep investors satisfied. When they see that your revenues are strong and you are getting paid on time, they believe that your company is set up for success. Investor money is finite, meaning it will run out eventually. Even if you have sufficient funds from investors in the present, you should work on improving your cash flows to meet business expenses.  

What Does a Company Put in Its First-Ever Cash Flow Statement? 

A company's first cash flow statement essentially includes the preliminary capital it has obtained. This can include the contribution of the owners and any other business loans. Both these financing activities must be recorded because they mark the beginning of a cash flow in any business.  

Any purchase of long-term assets, including office equipment, furniture, a new office, space, or anything along these lines, must also be recorded. All these purchases will be noted as a cash outflow and included in the investment or investing section of the cash flow statement. If the business receives any advance, deposit, or payment from customers, it will be recorded as a cash flow under the operating section of the cash flow statement. Similarly, any pre-sold products or services must also be included. 

The Difference Between a Balance Sheet and a Cash Flow Statement 

The balance sheet and cash flow statement represent the company's financial position. However, a balance sheet gives a bird's eye view of a business's total assets, liabilities, and equity. At the same time, a cash flow statement is a compilation of the total cash flowing in and out of the business. A balance sheet is often used to understand the financial status of an enterprise. For instance, if a business has more liabilities than assets, it is not in a good financial position. 

On the other hand, a cash flow statement is often used for financial planning and budgeting since it gives a complete understanding of the money-making sources and your cash outflow during a given timeframe. A balance sheet is prepared after preparing a profit and loss statement, whereas a cash flow statement is prepared after the balance sheet is prepared. 

Components of A Cash Flow Statement

In compliance with Singapore Financial Reporting Standards, the mandatory items of a cash flow statement are as follows:

1. Operating Activities

Operating activities take into consideration cash obtained or used from your startup’s operational transactions. This portion of the cash flow statement allows you to identify sustainable cash inflows, management of working capital, and early detection of liquidity issues.

2. Investing Activities

Investing activities indicate cash flow from acquisition and disposal of assets and investments. This section highlights lucrative investments and flags less profitable ones that produce non-recurring returns.

3. Financing Activities

Financing activities take into consideration cash movement from changes in liabilities and shareholder’s equity. This portion highlights cash flow from financing activities such as term loans and the purchase of shares.

4. Net Cash Flow

Also known as net working capital, this is the difference between your startup’s cash inflows and outflows. A positive cash flow indicates that a company’s current assets are sufficient to fund its current liabilities.

‍Conversely, a negative cash flow indicates that your current liabilities are higher than your current assets. In the short-term, a negative cash flow is fine as it could mean that you just bought a large amount of assets.

However, if your startup business is facing a negative cash flow for extended periods, this could potentially be a problem.

Cash Flow Statement Example

Constructing the Statement of Cash Flows from scratch can be an uphill and intimidating task for startups that are new to this. Fret not, for we have got you covered with this cash flow statement example for startup of a cash flow statement by ACRA. Feel free to keep or remove the items that are relevant to your business. 

Why Are Cash Flow Statements Vital for a Startup’s Success?

Cash is king. Without sufficient cash, a startup may find itself in a sticky spot, unable to pay suppliers, employees and other key stakeholders. 

If you don’t pay suppliers on time, they may be unwilling to do business with you. This will lead to production problems and other issues for your business. 

If you don’t pay employees on time, they may leave the company. A talent crunch can result in poor performance and work delays. 

Even if you get funding or VC money as a startup, it is important to do smart cash flow management because you need to maintain a runway until your next funding round and manage that efficiently. 

Challenges to Cash Flow Management for Startups

Now that you know what a cash flow statement for a startup is and what it comprises, let’s understand the need for for the same. A new company has many challenges that holds it back from flourishing. A low cash flow is a common reason why startups are stumped. When a startup tries to manage its cash flows, it faces many challenges. ‍

Underestimating Costs 

A new startup may often struggle to estimate costs correctly. Very often, being too optimistic about estimates can lead you to a cash crunch later. Without sufficient historical data, you may find yourself understating costs. Always err on the side of caution when you estimate startup costs. ‍

Missing High Overheads 

A new business will have limited resources. Spending too much on overheads can run you into cash problems. If your rent is as high as a mature business or you are giving your employees too many perks, you may run out of money sooner than expected. ‍

Taking On Too Much 

You may want to grow quickly and jump on every opportunity to prove you can succeed, but this can result in cashflow problems. For instance, if you take on a client that requires your employees to put in extra hours, you will have to compensate them for that. However, if payments are due only after the project is completed, if the timelines don’t match, you may not have cash to pay wages. ‍

Predicting Profitability Early 

If you are unrealistic about when you will achieve profitability, you may lead yourself into money flow issues. Consult a business expert to understand realistic timelines for your business based on sustainable growth. 

Managing Startup Working Capital

As illustrated in the sample cash flow statement, the sources of working capital can be condensed into 4 “C”s:

• Collection of payment from customers
• Credit terms paid to suppliers
• Credit facilities
• Cash on hand

💡 Tips: If you need help getting access to working capital, Aspire Credit Line gives entrepreneurs access to flexible cash flow with low interest rates.

With these in mind, your startup can look to generate healthy cash flow through the following methods.

1. Collect receivables before payable due dates

Collecting payment from customers before financial obligations are due ensures that your startup has sufficient funds to pay your suppliers. This can be done by shortening the payment term for customers or giving them discounts for making early payment.

In addition, negotiating for a longer credit term with your suppliers also gives your startup more time to gather cash inflows from customers.

2. Reduce inventory

In monitoring your startup’s inventory levels, sieve out slower-moving products. You should buy or produce less products that accumulate huge amounts of stock.

This frees up cash that was once tied to inventory, enabling your startup to channel these funds towards timely payments. This cash can be spent on meaningful marketing strategies that increase sales for potential business expansion.

3. Make investments

A high net working capital does not equate to a healthy cash flow. A large cash flow can mean that your startup is not fully utilising its available cash to maximise growth.

Instead of leaving cash on the table, seek out money-making investments or new growth opportunities such as expanding your business product line or entering a new market.

Steps to Create an Excellent Cash Flow Statement for Startups‍

Creating a perfect and accurate cash flow statement for a startup comes down to how well you understand your own business, keep track of cash and record them on time. Here’s how you can improve cash flow management for your startup

Understand Cash Flow Statements ‍

Before you get into creating a cash flow statement for your startup, spend time understanding how cash flow statements are actually constructed. As outlined above, cash flow statements comprise of four components - Operating Activities, Financing Activities, Investing Activities, and Net Cash Flow. Take a look at all your operations and categorise each of your income and expenses into these buckets. This will help you record cash flows when they arise.

Gather Data

Take a look at all your financial statements to gather data. You should be studying your Balance Sheet, Profit and Loss Account, Trade Account, Equity Statement, Invoices, contracts, investments and any other material statements. This will give you an insight of what to look out for when preparing your cash flow statement.

Record Inflows and Outflows

Using your financial statements and other documents, record the different inflows and outflows in your cash flow statement. For instance, you can track the opening and closing balances of different line items on your balance sheet. You can then find out why these differences occurred. This will help you track cash movement. 

Adjust for Non-Cash Items

Your balance sheet will contain many ups and downs that are not cash-based. For instance, depreciation and goodwill are not cash items. Or, interest on investments may have accrued but not received yet. You should adjust these items in your cash flow statement.

Perform a Final Check ‍

After the above steps, your cash flow statement should be ready. However, to ensure accuracy, go over your cash flow statement to see if you have missed anything. You could also rope someone else in to check for any mistakes.  

How to Enhance Decision-Making with Financial Statements 

Financial statements do more than simply show the overall financial health of a business. In fact, learning to carefully analyze the statement offers valuable insights and data that can be used to formulate better investment and operation strategies for your business. A simple way in which financial statements can be used to enhance decision-making. 

Financial Health  

For good decision-making, it's important to completely understand the business's financial health. The balance sheet offers insight into the business's ability to fulfill its short-term obligations. Using this, ratios such as the current, solvency and quick ratios can be calculated to determine whether the business has sufficient assets in place for its liabilities. This can be used to make essential decisions about refinancing or debt reduction. 

Business Forecast  

Financial statements contain historical data that can be used to forecast a business's future performance. For instance, past expenses, revenue, and overall profitability can be used to project future cash flow and capital requirements. In turn, this can be utilized for more accurate planning, budgeting, and decision-making.  

Effective Cash Flow Management  

Financial statements can also be utilized to manage your business effectively, such as cash flow. For instance, if the cash flow from operations is landing, delaying any plans of expansion or negotiating better payment terms with suppliers is recommended. Businesses can analyse their financial statements to identify areas where they are making and losing money.  

Cost Management and Efficiency  

Analysis of financial statements also provides insights into cost management and efficiency and overall operational efficiency. For instance, if the inventory turnover ratio is weak, it can result in an increase in storage costs and tied-up payments. Similarly, if the receivables are high, it means a better system must be introduced to ensure customers clear their dues on time. 

Investing and Financing  

Decisions about debt, financing, and investments are all normally based on the data and insights derived from financial statements. The returns from previous capital expenditures can be compared with a business's profitability matrix to determine which investment would be a justifiable business decision. Similarly, the business's return on investment is also determined through financial statements themselves. These insights can be used to determine the right investment for the future.  

Tips For Managing Cash Flow in a Start-Up 

Here are some simple tips start-ups can use to manage their cash flow effectively. 

• The first thing every business must know is the cash flow level needed to break even. If you fall short and it happens consistently, it means an issue must be addressed immediately. 

• Always ensure that our timelines and terms are set for the payments you have to receive. Whether from a supplier or a customer, ensure timely receipt for the products or services provided. 

• One of the most important practices any prudent business should maintain is to have a reserve of emergency funds. This provides flexibility and ensures your business is secure in unpredictable circumstances. 

• A common mistake most make is the belief profit is the only aspect of your business’s success. However, it also means you must manage the cash flow of your business properly. Check the earnings your business makes against the breakeven point. If it feels like you are in a tight spot, even after breaking even, it's a sign that there's some issue with your business's accounts receivable and payable. 

Healthy Startup Cash Flow Management

The cash flow statement continues to be a highly important financial statement for your business — for both legal reasons and measuring your business' health. A healthy cash flow is key for a startup to thrive and can be managed through analysing various aspects of the cash flow statement.

Moreover, with COVID-19 and the recession in place, this statement plays an even essential role in ensuring your business' sustainability to make it past these difficult times. Therefore, you must ensure that your cash flows are managed efficiently and adequately.

Frequently Asked Questions

How can I create a cash flow statement tailored for my Singapore startup? 

You need to maintain a proper cash flow statement to manage the financial health of your business. Your first step in creating this statement is sorting your cash flows based on operational, investment, and financing activities. To create the cash flow statement, you can either use the direct technique, which shows real cash inflows and outflows, or the indirect method, which starts with net profit and accounts for non-cash items. It is important to adhere to Singapore Financial Reporting Standards (SFRS) when creating a cash flow statement. For accuracy, get the advice of an accountant if necessary.  

What format should I follow when preparing a cash flow statement? 

There are two formats for preparing a cash flow statement, namely direct and indirect. The direct method demonstrates real cash inflows and outflows, while the indirect method denotes net profit and includes non-cash items and working capital changes.  

Do I need an accountant to prepare a cash flow statement, or can I do it myself? 

If you understand the fundamentals of accounting and financial statements and know how to work with accounting software or spreadsheets, you can certainly create a cash flow statement on your own. However, professional accountants can guarantee accuracy and adherence to accounting standards if your finances are complicated or you don’t understand certain computations. 

Are there any software tools available in Singapore that can generate a cash flow statement? 

Yes, Singapore businesses can use accounting software like Xero, MYOB, and QuickBooks to generate cash flow statements, with Xero being particularly popular for its accuracy and integration. 

How do I update my cash flow statement when my business grows? 

As your business expands, you need to routinely review and change your projected sales, expenses, and capital investments depending on your growth path. It is a good practice to closely monitor important indicators such as accounts receivable, inventory levels, and payables while also considering possible funding needs to support expansion and new initiatives.  

How do I handle delayed payments from clients in my cash flow statement?  

When there’s a delay in payments from the client’s side, you should ideally record the amount owed as "accounts receivable" under "operating activities" on your cash flow statement. This denotes the money owed to you but has not been received yet. Keep an eye on these receivables to make sure they are collected on time by sending reminders and possibly enforcing stricter payment terms if needed. You could also offer early payment discounts to encourage prompt payments. 

How do I manage unexpected expenses that affect cash flow?  

To deal with unexpected costs that affect your cash flow of your business, you need to save up for emergencies, keep a close eye on your spending, actively track your expenses, ask suppliers for flexible payment terms, and look into options such as invoice factoring or an open credit line to get quick cash when you need it. This way, you can create a buffer to handle sudden costs while planning ahead for possible financial problems. 

How can I adjust my cash flow statement if my startup experiences rapid growth?  

When your startup grows quickly, you can make changes to your cash flow statement by keeping a close eye on your incoming revenue. Ensure you price your products appropriately, organize your billing and collection methods, and monitor how much you spend on operational costs. This is a good time to look for more money to help with your growth. 

What are some warning signs in a cash flow statement that indicate financial trouble? 

When looking at a cash flow statement, it's important to look out for warning signs that could indicate financial trouble for your business. These include, but are not limited to: 

• Consistently negative operating cash flow 
• Accounts receivable that are growing at a significant rate
• High debt levels
• Large outflows of cash from investments that don't match up with inflows 
• Relying on financing activities to cover operating expenses frequently
• An overall decline in cash flow from operations time.