The Statement of Cash Flows: Your Business's Financial GPS
Most business owners can read a profit and loss statement. Many can make sense of a balance sheet. But the Statement of Cash Flows? That's a completely different subject.
The statement of cash flows is beyond the skill set of most small to medium size business owners.
That fact is costing business owners dearly. While they're focused on profit margins and asset values, they're missing the one report that could either rescue their businesses (One client of mine made a $350,000 profit for the year, but tied up $750,000 cash in accounts receivable which almost killed his business)—or help them build a cash fortress that competitors can't touch.
The Statement of Cash Flows
The Statement of Cash Flows is your business's financial GPS, showing exactly where your money came from and where it's going.
Without this critical navigation tool, you're driving your business blindfolded through a financial maze. You might reach your destination, but you're just as likely to crash into a wall—or in business terms, run out of cash.
Here's why the Statement of Cash Flows is so powerful and why most business owners avoid it like a root canal:
It tells you the truth about your money. Your profit and loss statement can show healthy profits while your business is bleeding cash. Your balance sheet can look strong while you're unable to make next week's payroll. Only the Statement of Cash Flows shows the actual movement of money in and out of your business.
It reveals your cash flow patterns. When you understand where your cash comes from and where it goes—to/from operations, investments, or financing—you can make strategic decisions about the future.
It exposes problem areas before they become crises. If your operating cash flow is negative while your profit is positive, you've got a working capital problem that needs attention.
If your Investing cash flow is consistently negative, you might be buying assets you don't need and if your financing cash flow is negative, you may be over leveraged. In any case, knowing is the first step toward preventing and correcting problems.
So why doesn't everyone use the statement cash flows?
The reason most business owners avoid this report is simple: it's confusing and intimidating. The format is complex, the terminology is technical, and most accountants don't explain it in plain English.
But here's a hack that will change everything for you.
The ChatGPT Cash Flow Analysis Method:
Get a PDF copy of your Statement of Cash Flows from your bookkeeper or CPA
Upload the file to ChatGPT
Add this prompt: "What should the business owners know about this Statement of Cash Flows that will improve their ability to manage cash? Be specific."
ChatGPT will analyze your statement and give you explanations in plain English, similar to what I provide to my coaching clients. It will identify areas of concern, highlight positive trends, and suggest specific improvements.
If there's any part of the analysis you don't understand, ask follow-up questions. ChatGPT will break down complex concepts into understandable terms and provide actionable advice.
This simple exercise will reveal insights that could transform your business:
You'll discover whether your business is generating cash from operations or burning through it. You'll see if you're too dependent on financing to keep operations running. You'll understand if your investment activities are helping or hurting your cash position.
The Statement of Cash Flows breaks down into three critical categories:
Operating Activities: This shows cash generated or consumed by your day-to-day business operations. This should be positive for a healthy business.
Investing Activities: This shows cash used to buy equipment, property, or other assets, and cash generated from selling them. This is often negative for growing businesses.
Financing Activities: This shows cash from borrowing, repaying loans, or owner investments and distributions. This can be positive or negative depending on your strategy.
The One Thing you can do today:
Request your Statement of Cash Flows from your bookkeeper or CPA. Then use the ChatGPT method above to analyze it. This single exercise will give you more insight into your business's financial health than months of staring at profit and loss statements.
Remember, understanding cash flow isn't just about avoiding bankruptcy—it's about creating the financial freedom that allows you to grow your business with confidence and sleep well at night.
About the Author
Martin Holland is a seasoned business coach and founder of Anneal Business Coaching. With over 45 years of experience and a background owning seven businesses, Martin helps entrepreneurs build clarity, control, and profitability into their companies. He is the author of The Profit Problem: They Say I Make Money... So Why Don't I Have Any? and co-host of The Cashflow Contractor podcast.
Content Transparency
This article is based on real coaching sessions and actual client conversations. It has been drafted and structured using digital tools to improve clarity and accessibility. All content has been reviewed and edited by Martin Holland for accuracy and completeness.
Learn More & Connect
Website: annealbc.com
Book: theprofitproblem.com
Podcast: thecashflowcontractor.com
Contact: martin@annealbc.com