How you should prepare a cash flow statement

One of the reasons Kenyan entrepreneurs are turned away by banks is because of poor bookkeeping. You may have all the records, with you, but banks will still tell you no if they are not professionally prepared.

This is bad news for your upcoming businesses if you cannot afford to employee an accountant. What alternative should you seek? You must learn about accountancy of course. I understand if you hold reservations about sitting through a class again or are afraid of being caught up in a student demonstration. GSU clobbering is no joke.

Don’t worry, HerBusiness will help you develop all the basic accountancy skills you need at this stage of your business.

Here is how to prepare a Cash Flow Statement (yes, comes with diagrams)

I know you religiously maintain day-to-day records on your business. That’s cool. But the most important financial statement is the Cash Flow. It is like an annual summary, or so, of your day-to-day records.

The Cash Flow Statement helps you know whether your business actually has cash to operate. Unlike other financial statements, you only make records on your cash flow book when money moves through your hands. There is no room for stories like, “hii deal iki-go through.” You record all the money that has come in and has gone out of your business over the financial year.

Here is the example:

1. You can use any of the many free spreadsheet software, like excel, to do this. First you prepare the title as shown below:

[Your Business Name]
Statement of Cash Flow for Period ended (Date Here)


2. After that you enter data for all the cash from your operating activities. This means the stuff that brings money to your business. For example, if you sell clothes you include only money customers paid for the clothes. Don’t include secondary income sources (like when you sell an asset of business). You can start it off with profits but only if you’ve adjusted it to only include money you made from primary business activities:

Cash Flows from Operating Activities Ksh Ksh
cash receipts (from customers) add
cash payments (inventory,wages) subtract Net Cash Flow from Operating Activities


3.The Investing Activities section is where you can include money you made from selling that old seat that has been breaking your back, for example. When you buy a new one you must record the cash you paid for it. This section has all to do with the secondary sources of income and expense for your business:

Cash Flows from Investing Activities Ksh Ksh
cash receipts (sale of equipment) add
cash payments (purchase of equipment) subtract Net Cash Flow from Investing Activities


4.Because your financial statements are well done, the banks will definitely give you a loan (if they don’t the government will). When they do you must record that bank account top up as cash receipt, in Financing Activities. The interest you on the loan will be recorded as cash payment on this section. Every activity to finance your business operations is recorded here:

Cash Flows from Financing Activities Ksh Ksh
cash receipts (bank loan) add
cash payments (interest on bank loan) subtract Net Cash Flow from Financing Activities


Lastly, you sum up your entries to find out whether you have positive or negative cash flow. Your findings will reveal the truth about your working capital and will help you predict how much you’ll make in the near-future.

Continue reading: learn how to handle the legal affairs of your business by yourself