cash flow analysis

Cash flow analysis is very important as a small business tool.  Cash flow is the lifeblood of your business, whether you have a small one-person business run from your home or a large business with multiple locations and many employees.  If there's not enough cash coming in, how do you pay bills or employees or invest in your business?

Ask yourself these questions:

  • Do you need additional small business financing or do you have enough money to invest back into your business?
  • Do you have slow periods throughout the year that you need to save for?
  • Are you planning to buy a new piece of equipment?  Do you know when the business has enough cash left over for that purchase?

You will know the answers to these questions if you prepare a cash flow analysis on a regular basis.

For a lot of small business owners, financial statements are quite intimidating.  So they don't take much of an interest in them beyond checking the sales and profit.  Some of you may be using your checkbook as an accounting system (Gasp!) and are missing the knowledge they provide.  It's essential for you to have as much info as necessary to make informed business decisions.  Notice I said 'as much as necessary'.  I didn't say 'loads of reports'.  Too many numbers and stats and your mind just shuts off, your eyes glaze over, and you just get confused.  Right?

I think you should look at a regular ( monthly or quarterly, depending on your business size) Balance Sheet, Income Statement, and Cash Flow Analysis.

So let's talk about cash flow.

steps in a cash flow analysis

We're going to look into the future and plan for the next 6 weeks.  This is a great example for you to learn the basics. 

You're going to need a calculator and some ledger paper, or open a new Excel spreadsheet file.

1. At the top of the sheet, make column headings for:

  • Description
  • week 1 (this would be for the coming week)
  • week 2
  • week 3
  • week 4
  • week 5
  • week 6

You could also name the columns 'Week ending April 7" and so on if you want specific dates.

2. Next, enter your cash available in the first row under 'Description'.  This would be your current business bank balance.  This is your starting point.  Label it 'Beginning Cash' like in the example below.

3. On the next few rows, list out each revenue stream your business has.  For example, if you run a dvd rental store, you may have dvd rentals, dvd sales, late fees, etc.  Then label the next row for Total Cash In.  See the example below.

4. Skip a row and title the next row 'Total Cash Available'.  This will be your Beginning Cash plus your Total Cash In for each week.  That's how much cash you have to use that week.

5. The next step in your cash flow analysis is to list out your expenses.

6. List everything you have to pay out each month, like utility payments, rent or mortgage payments, employee payroll, etc.  When you're done listing those, make a row for Total Cash Out. That will be the total of all your expenses each week.

7. Skip a line and make the next row 'Cash Over / Short'.  This will be the Total Cash Available minus Total Cash Out.  This is what you have left for each week after paying all the bills due that week.  Hopefully it's a positive number!

8. Now it's time to fill in all the columns for all your expected cash in and cash out.  It may help to look at previous bank statements.  Look at your deposits, and add them up based on a weeks time.  Look at maybe 3 months worth, and take an average.  For bills, place the average amounts in the week they will be due.

You should come up with something like this example here.

Filling in our cash flow analysis

To start with, we have $1000 in beginning cash.  This amount is in the bank right now. That's our starting point.

Next take a look at the revenue streams listed for the first week.  We have dvd rentals, dvd sales, and late fees.  We expect to bring in an additional $3175 in income.  Add that to our $1000 beginning cash, and we have $4175 in total cash available for the first week.

Then we listed all our bills due that week, totaling $2530.  After we pay those bills, we expect to have $1645 left over.  This is our Cash Over for the week.  If we had more expenses than revenue (income) then we would have Cash Short instead of Cash Over.

This week's Cash Over becomes next week's Beginning Cash.

Repeat that process until all 6 weeks are filled in.

Now, when it's all completed, take a step back and look at it, really look at it.

What is this tool telling you?

analyzing your cash flow

It tells you a lot of things.

First of all, it shows a cash gain of $990 for this 6 week period.

It also shows that for 1 of those weeks, week #4, you will have a negative cash flow. So you won't be able to pay all your bills that week.

It also shows you which weeks have higher expected sales than the other weeks.

So, what good is that?

Knowing all this ahead of time means that you can put efforts in motion to adjust for low sales or excess expenses, and even to plan for cash overages.

For example, if this was your business, you could possibly lower your payroll in week #4 to lower expenses for that week, or place an ad to have a sale on dvd's to try to increase your revenue that week.

In a week of high cash over, you could save some cash for a week showing a cash shortage, or you could buy more dvd's to sell or rent, helping to increase your revenues in upcoming weeks.

This is a simplified example, but hopefully you see the possibilities here for your business.


A Cash Flow Analysis is a great tool that shows you periods of excess cash and periods of shortages of cash.  This gives you time to plan ahead, and make changes that will hopefully bring in more revenues for your business in the coming weeks and months.

Besides preparing this for a month or two into the future, you can also prepare this analysis for the upcoming 12 months.  Making a yearly cash flow analysis is a good way to plan for upcoming purchases and growth.  Knowing where your high and low cash points are gives you time to put changes in place so when the time comes, you will keep your cash flow positive.

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