Proforma Cash Flow Statements

Even if you do the bare minimum when it comes to financial reporting in your business plan, Proforma Cash Flow Statements are essential. Particularly if you are hoping to use your business plan to convince people to either invest in your business or to provide you will startup funding!

Why?

Because these statements provide the reader of your plan with an estimation of the cash flows in and out of the business. One of the main things they want to know about your new business is whether you will be able to pay your bills as and when they come due!

Another reason is that although a profit and loss statement offers a summary of the operational transactions of the business (expenditure and revenue) and calculates the profit generated from the trading activities of the business, it does not provide any information about the investing and financing transactions of the business.

The fund statement or cash flow statement provides the business owner and potential investors with a report on the liquidity of the business and discloses the extent to which the business has or will generate funds from operations (trading and other activities) over the reporting period.

There are two approaches to presenting cash flows from operating activities.

The first is the direct approach, which involves reporting gross operating cash inflows and gross operating outflows. An example of a statement below follows this format.

The second approach is the indirect approach, which is based on the profit and loss statement but adjusted to reflect the cash flow from activities. With this approach you need to reconcile the cash flows with the operating profit after tax as reporting in the Profit and Loss or Income Statement. This graphic shows an example of a statement which follows this format .

Return to top of Proforma Cash Flow Statements

Return to Your Business Financial Plan