What this form is for
This form shows banks how cash moved through your business over a reporting period (monthly, quarterly, or annual). Lenders require it to verify that your income statement profits translate into actual cash you can use to service debt.
Before you start
- Your completed balance sheets for the beginning and end of the period you are reporting.
- Your income statement (profit and loss statement) for the same period.
- Bank statements and reconciliation records covering the full period.
- Documentation of any major transactions: equipment purchases, loan proceeds received, owner contributions, dividend payments, or debt repayments.
- A decision on method: Direct (listing actual cash receipts and disbursements) or Indirect (starting with net income and adjusting for non-cash items). Most banks accept either, but Indirect is more common for small businesses.
Step-by-step
1. Select your governing state at the top of the form. This determines which statutory disclosures and footnotes may be required if your state has specific commercial-reporting rules.
2. Enter the reporting period dates and choose Direct or Indirect method using the toggle. Confirm this choice matches any prior statements you have given the lender.
3. Complete the Operating Activities section. For Indirect method, start with net income from your income statement, then add back depreciation, amortization, and other non-cash expenses. Adjust for changes in working capital: subtract increases in accounts receivable and inventory; add increases in accounts payable and accrued expenses. For Direct method, list cash received from customers and cash paid to suppliers and employees as separate line items.
4. Fill in Investing Activities. Report cash spent on property, plant, equipment, or intangible assets as outflows. Record any proceeds from selling assets as inflows. Each transaction should tie to an invoice or settlement statement.
5. Complete Financing Activities. Enter loan proceeds received, principal repayments made, owner equity contributions, and distributions or dividends paid. Do not include interest expense here—that belongs in Operating Activities.
6. Review the auto-calculated subtotals for each of the three sections. The form will sum them to show Net Change in Cash.
7. Enter your beginning cash balance from the prior period balance sheet and confirm the ending cash balance matches your current period balance sheet. If these do not reconcile, double-check every line item before submitting.
8. Attach required footnotes explaining any unusual or large transactions, changes in accounting method, or non-recurring items.
What lenders look for
- Banks focus on operating cash flow. Negative operating cash over multiple periods is a red flag, even if you show accounting profit—it suggests collection problems or unsustainable working capital needs.
- Ensure your ending cash balance ties exactly to the cash line on your balance sheet. Mismatches signal poor controls or incomplete records.
- Avoid lumping transactions into "other" lines. Lenders want transparency, especially for financing activities like shareholder loans or related-party payments.