It’s not the lack of sales that sinks most small businesses; it’s running out of cash when you need it most. As many as 82% of small businesses fail due to cash flow problems, with 38% failing because they have completely exhausted their cash flow. If you're chasing late invoices while fronting payroll, raw materials, or fuel costs, you’re already playing financial defense.
For contracting firms, wholesalers, and manufacturers alike, a solid cash flow statement is your control panel. It shows what’s coming in, what’s going out, and when the squeeze is about to hit. Done right, it helps you spot trouble early, make smarter decisions, and stop running your business with crossed fingers.
Let’s find out how to build a cash flow statement from scratch.
Key Takeaways
- A cash flow statement tracks actual money moving in and out of your business, unlike profit reports, which focus on income and expenses on paper.
- Late customer payments, processing delays, and hidden fees are major threats to healthy cash flow in B2B environments.
- Building your own cash flow statement involves four steps: gathering documents, calculating cash from operations, tracking investments and financing, and reconciling to your bank.
- Once complete, a cash flow statement helps guide decisions on collections, seasonal planning, and working capital without relying on guesswork.
- Common mistakes include recording cash at the wrong time, overlooking recurring costs, and failing to match cash balances to bank records.
- A rolling 13-week forecast and scenario planning allow you to identify risks in advance and act with more financial clarity.
- Modern tools like Nickel improve your cash flow statement results by eliminating ACH transfer fees and providing real-time payment tracking.
What Is a Cash Flow Statement and Why Small Businesses Can't Ignore It
A cash flow statement tracks the actual movement of cash into and out of your business over a defined period, typically monthly or quarterly.
Unlike a profit and loss statement, which records income when it's earned and expenses when they're incurred, the cash flow statement reflects real-time liquidity, which is when money physically enters or leaves your bank account.
For small businesses operating on net-30, net-60, or even net-90 terms, this difference is critical. You can appear profitable on paper while running out of cash in practice.
The cash flow statement is typically divided into three key sections, including operating, investing, and financing activities. Being familiar with each one is essential to pinpoint where your money is going and where shortfalls might occur.
Operating Activities
This section covers your core business operations, including customer receipts, supplier payments, payroll, rent, and utilities.
For most small businesses, this is where cash flow problems first appear. If you consistently pay out more than you collect, the issue likely lies here.
Track this section closely by recording when customers actually pay their invoices. Implementing automated reminders or offering early payment discounts can help tighten this cycle.
Investing Activities
Investing activities reflect cash spent on long-term assets or earned from selling them. This could include purchasing machinery, upgrading equipment, or disposing of unused tools or vehicles.
While necessary for growth, significant investments can create cash shortages if not timed properly.
Before making major purchases, project how the expense will affect your cash position over the next several months. You may need to delay upgrades or finance them to preserve liquidity.
Financing Activities
This final section includes inflows from loans, investor capital, or owner contributions, and outflows like loan repayments or owner withdrawals. For newer businesses, financing often fills temporary gaps in operating cash flow.
Together, these three categories provide a full picture of your business’s financial health. Monitoring them regularly will help you anticipate cash gaps, negotiate better terms, and avoid surprises when it comes time to meet payroll or pay vendors.
The Hidden Cash Flow Killers in B2B Businesses
Before you build a cash flow statement, it's important to understand what might be draining your liquidity behind the scenes.
Many B2B businesses face systemic cash flow challenges that don’t show up clearly on profit and loss statements or balance sheets.
Recognizing these hidden threats allows you to build more accurate projections and avoid running short when it matters most.
Late Customer Payments
Late payments are one of the most common and damaging cash flow obstacles for B2B operations. According to recent data, 33% of B2B invoices remain overdue by 90 days or more. In industries like construction, manufacturing, and wholesale, it is not unusual to wait 60 to 90 days, or even longer, for payment.
Meanwhile, your business is expected to cover payroll, raw materials, rent, and utilities with cash that hasn't arrived.
To improve this cycle, consider tightening credit terms for slow-paying customers or incentivizing early payments with small discounts. Also, automate invoice reminders and follow up regularly to avoid slipping through the cracks of larger accounts payable departments.
Payment Processing Delays
Even after a client sends payment, banking processes can still delay the actual cash receipt. ACH transfers can take three to five business days, depending on your bank, the processor you use, and the day of the week the transfer was initiated.
If you're mailing or receiving paper checks, you're looking at even longer wait times, particularly around holidays.
To shorten this delay, opt for same-day ACH when possible or work with a payment processor that offers faster settlement options. Establishing a cutoff time policy for payment submission can also help consolidate cash inflows into more predictable batches.
Costly Payment Processing Fees
Many B2B business owners underestimate the drain that payment processing fees place on cash flow. For example, using a platform like QuickBooks Payments for ACH transfers can incur fees around 1%.
While that might seem reasonable on small transactions, it adds up quickly on large invoices. A $50,000 payment with a 1% fee translates to a $500 charge, money that could otherwise cover a supplier invoice or help make payroll.
To manage this, review your current processing agreements and negotiate better terms. Some platforms offer flat fees or discounted rates for high-volume clients. Also, consider routing payments through lower-cost channels when possible, especially for larger invoices.
Step-by-Step Guide to Building Your Cash Flow Statement
To build an accurate cash flow statement, you need to go beyond automated reports. The process involves gathering detailed financial inputs, understanding the movement of money through your operations, and ensuring the final numbers align with your actual bank balance. Below, we divide the process into four essential steps.
Step 1: Gather Your Source Documents
Begin by collecting all the necessary records. Your accounting software will generate core reports, but you should also refer directly to your bank statements to capture the full picture. In particular, pull the following:
- Bank statements for the period
- Accounts receivable aging report
- Accounts payable summary
- Profit and loss statement
- Loan and credit card statements
- Payroll and tax payment records
Create a spreadsheet that includes columns for the date, description, cash received, cash paid out, and running balance. This working file helps you track actual inflows and outflows while also identifying timing differences between recorded revenue and available cash. These differences are especially important for B2B businesses operating on net terms.
Step 2: Calculate Cash Flow from Operating Activities
Start with your net income from the profit and loss report, then adjust it to reflect real cash movement. This means removing non-cash items and factoring in working capital changes. The most common adjustments include:
- Depreciation and Amortization: Add back since they reduce net income but don’t affect cash.
- Change in Accounts Receivable: If your receivables increased, it means more cash is tied up with customers and hasn't hit your account. Subtract that amount.
- Change in Accounts Payable: If your payables increased, you held onto more cash by delaying payments. Add that amount.
- Inventory Changes: If you purchased more inventory, that's a use of cash. If inventory decreased, it's a source of cash.
Make sure to adjust for any prepaid expenses or accrued liabilities as well. These working capital components can significantly skew your cash position if not properly accounted for. Also, include operating cash inflows such as customer payments, refunds received, or other operating income sources not captured in net income.
Step 3: Track Investing and Financing Activities
Next, outline major capital expenditures and funding-related transactions. These are typically recorded separately from daily operations but have a meaningful impact on cash.
Investing Activities May Include:
- Equipment purchases or disposals
- Real estate transactions
- Vehicle acquisitions
Financing Activities Include:
- Proceeds from business loans or lines of credit
- Owner equity contributions
- Repayments of principal on loans or leases (note: interest goes under operating activities)
- Owner draws or dividends
For accuracy, track these transactions using actual payment dates rather than when they were booked. This gives you a real-time view of cash movement related to long-term growth and funding.
Step 4: Reconcile to Your Bank Balance
Once all cash flows are accounted for, calculate your ending cash balance. This figure should match your actual ending bank balance after factoring in:
- Outstanding checks
- Deposits in transit
- Unposted bank fees or charges
If there’s a mismatch, double-check your entries for missing items, incorrect signs, or duplicate transactions. This reconciliation step is where many business owners catch data entry errors or overlooked cash activity.
Reconciliation ensures that your cash flow statement reflects financial reality, not just what’s recorded in your system. It's a critical step for maintaining trust in your internal reporting and for making confident financial decisions.
Using Cash Flow Statements for Better Business Decisions
Once your cash flow statement is complete, its greatest value lies in how you apply the insights to strengthen day-to-day and strategic decision-making. The data highlights where problems are forming and what you can adjust to keep operations running smoothly.
Monitor Payment Timing and Collections
Your cash flow statement gives you a clear picture of how long it takes to get paid. If your operating cash flow is consistently negative while your profit and loss statement shows a healthy margin, delayed customer payments are likely the cause. This often happens in contracting, wholesale, or manufacturing businesses with net terms.
To improve collection cycles, consider the following:
- Offer early payment discounts (e.g. 2/10 Net 30) to incentivize faster payments
- Use payment processors that eliminate or reduce ACH delays
- Send automatic invoice reminders and follow up consistently
- Evaluate which customers regularly pay late and consider adjusting their terms
A shorter collection cycle frees up cash that can be reinvested immediately rather than sitting in accounts receivable.
Identify Seasonal Patterns and Plan Ahead
Unlike a profit and loss statement, a cash flow statement reflects real timing differences. This makes seasonal fluctuations much easier to spot. If your business tends to slow down in the winter or before major industry events, your cash flow records will show exactly when and by how much.
Reviewing prior-year statements helps you:
- Plan when to draw from your line of credit
- Time large purchases or capital improvements
- Adjust marketing spend to periods of stronger cash flow
- Build a buffer before slower months
Proactively planning around seasonal cash flow gives you greater stability throughout the year.
Make Smarter Working Capital Decisions
Many small business owners hesitate to extend terms or take on new opportunities due to uncertainty around cash availability.
A well-built cash flow statement lets you model how changes in payment terms or order volume will affect your real-time cash balance.
For example, before agreeing to a new client’s request for Net 45 terms instead of Net 30, you can model how the delay in payment will impact your ability to pay vendors and meet payroll. This allows you to:
- Negotiate partial upfront payments when needed
- Align vendor payment schedules with customer payment cycles
- Avoid cash gaps that could disrupt operations
Using your cash flow statement as a decision-making tool gives you more control and reduces the guesswork behind financial planning. You’ll be able to act with confidence, backed by real data on how money moves through your business.
Technology Tools That Streamline Cash Flow Management
Building cash flow statements manually works, but technology can automate most of the heavy lifting while providing real-time insights. For example, QuickBooks and similar accounting platforms generate basic cash flow reports, but they often miss the nuances that matter most to businesses with complex payment cycles.
However, modern payment platforms that integrate with accounting software provide more accurate cash flow forecasting by tracking payments through the entire cycle.
Nickel's QuickBooks integration, for example, automatically updates cash flow projections when invoices are paid, eliminating the guesswork about when money will actually hit your account.
Real-time payment tracking becomes especially valuable for businesses managing multiple large invoices with different payment terms. Instead of wondering whether a $30,000 payment will arrive this week or next, integrated systems show exactly where each payment stands in the processing pipeline.
Common Cash Flow Statement Mistakes to Avoid
There are several big cash flow statement mistakes that SMBs must avoid in order to keep track of finances, including the following:
Confusing Profitability With Cash Flow
Profit does not mean available cash. You can show a profit on your income statement while still falling behind on bills. This is especially true if you invoice clients on Net 60 or Net 90 terms. Use your cash flow statement to monitor actual liquidity, not just theoretical profit.
Recording Cash at the Wrong Time
Many business owners mistakenly record cash when an invoice is issued or an expense is incurred. This leads to a distorted view of available funds. Instead, only record cash when it physically hits or leaves your bank account.
Ignoring Recurring Small Expenses
Recurring costs like software subscriptions, insurance premiums, and equipment leases may seem insignificant individually. However, they create a constant drain on cash. Track and include these expenses in your statement to avoid underestimating outflows.
Failing to Reconcile With Your Bank Account
Always verify that your ending cash balance matches your actual bank balance. Differences can stem from missed transactions, duplicate entries, or timing issues. Regular reconciliation ensures your data is accurate and trustworthy.
Overlooking Timing Gaps in Receivables and Payables
If accounts receivable is rising while payables are due immediately, your cash flow will suffer. Monitor how long customers take to pay and how quickly you must pay vendors. Adjust payment terms or collections strategies to close the timing gap.
Advanced Cash Flow Forecasting Techniques
After you've built a reliable cash flow statement, the next step is using that data to plan ahead. Forecasting helps you stay proactive by identifying upcoming cash gaps, guiding strategic spending, and reducing the risk of last-minute financing decisions.
Use a Rolling 13-Week Forecast
A 13-week rolling cash flow forecast is a practical method for most small businesses. It balances enough forward visibility with manageable complexity. Start with your current bank balance and layer in expected inflows and outflows for the next three months, broken down by week.
Update the forecast weekly using real results, and adjust projections based on new information. This includes changes to customer payment timing, seasonal cycles, or planned expenses like payroll runs, inventory restocks, or equipment repairs. Over time, patterns will emerge that help you make better decisions about timing bills and managing receivables.
Incorporate Scenario Planning
Forecasting isn’t just about one version of the future. Scenario planning allows you to prepare for multiple outcomes by creating different cash flow models based on varying assumptions.
Create three main scenarios:
- Optimistic: Customers pay faster than usual and new business increases.
- Realistic: Payments arrive on average timelines and expenses stay predictable.
- Pessimistic: Payments slow down and unexpected costs arise.
This modeling helps you anticipate the impact of delays, slow seasons, or new hires. You’ll be better positioned to determine if you need to use a credit line, delay capital purchases, or increase collection efforts.
Turn Forecasts Into Decisions
Cash flow forecasting should drive specific business actions. If your forecast shows a shortfall six weeks out, act now by tightening collections, postponing nonessential spending, or speaking with vendors about extended terms. If you’re forecasting a surplus, it might be the right time to pay off debt, restock inventory, or negotiate early payment discounts.
The Connection Between Payment Processing and Cash Flow
Your choice of payment processing directly impacts cash flow statement results. Traditional processing methods create delays and fees that compound cash flow challenges, while modern solutions can significantly improve your cash position, such as by eliminating ACH transfer fees.
Free ACH processing eliminates fees that drain cash from every transaction. If you're currently paying 1% fees, or more, on ACH transfers, switching to a fee-free solution like Nickel's platform can save thousands annually while improving your cash flow statement results.
Also, same-day ACH capabilities reduce the time between invoice payment and cash availability. Instead of waiting three to five business days for standard ACH processing, same-day options get money into your account within hours.
For businesses managing tight cash cycles, this improved processing speed can eliminate the need for expensive short-term financing.
Building Cash Flow Statements for Multiple Entities
Managing cash flow statements across multiple businesses requires standardized systems and client-specific flexibility. Here’s how to build cash flow statements for multiple entities.
Standardize Your Workflow
Use uniform templates for data collection and cash flow presentation. This reduces setup time and lowers the risk of omissions or errors. Integrate automated data feeds from accounting platforms like QuickBooks Online, Xero, or NetSuite to ensure real-time accuracy and eliminate manual entry.
Create a centralized workflow to track which clients or business units have completed data inputs, reconciliations, and forecasts. Maintaining this structure will help you scale your efforts without losing visibility.
Tailor Forecasting by Industry
Cash flow patterns vary widely between sectors. For example, construction contractors often face large upfront costs and delayed payments, while wholesalers may manage tight margins with frequent inventory turnover. Use forecasting models that reflect each client’s operating rhythm.
Identify the performance indicators unique to each business. For contractors, tracking receivables by project phase might be more important than tracking monthly revenue. For SaaS clients, churn and deferred revenue trends may drive cash forecasts.
Use Multi-Client Dashboards
Consider using tools that consolidate cash flow data across multiple entities. These dashboards help surface clients at risk of cash shortfalls and identify which businesses could benefit from improved receivables management, vendor term adjustments, or better payment processing methods.
Measuring Cash Flow Statement Success
Once your cash flow statements are in place, you need to measure whether your efforts are improving financial stability. Focus on the following metrics to evaluate performance and guide decision-making.
Operating Cash Flow Margin
This metric compares operating cash flow to revenue. It tells you whether your business model consistently generates real cash from operations. A healthy margin means your company has money in the bank to meet obligations.
Aim for a positive and growing margin over time. If your margin is shrinking, investigate whether receivables are growing too quickly, payables are being paid too soon, or margins are being compressed.
Cash Conversion Cycle
The cash conversion cycle (CCC) measures how long it takes to convert outflows for production and purchases into inflows from customer payments.
It is calculated by adding days inventory outstanding and days sales outstanding, then subtracting days payable outstanding.
A shorter CCC means you need less working capital to operate, which frees up cash for other uses. If your CCC is increasing, consider renegotiating vendor terms, improving collections, or reducing inventory levels.
Days Cash on Hand
This metric tells you how many days your business could continue operating using only available cash reserves. It’s a vital indicator of short-term financial health and helps assess the adequacy of your emergency cash buffer.
To calculate it, divide your available cash by your average daily operating expenses. Aim for a minimum of 30 days cash on hand, though the ideal number depends on your industry’s volatility and fixed cost structure.
Take Action on Your Cash Flow Today
Building a cash flow statement allows you to gain control over the financial aspect of your business that determines whether you'll be around next year. For businesses operating on net terms with large invoice amounts, cash flow management often matters more than profit margins.
Start with a simple monthly cash flow statement using the steps outlined above. Once you've built confidence with the process, move to weekly updates and add forecasting capabilities. The time investment pays dividends through better financial decision-making and reduced cash flow stress.
If payment processing delays and fees are creating cash flow challenges in your business, consider modernizing your approach. Nickel's integrated payment platform eliminates ACH fees while accelerating payment processing, directly improving your cash flow statement results.
Ready to take control of your cash flow?
Start your free account and see how modern payment processing can transform your cash flow management.
Frequently Asked Questions
What Is the Ideal Frequency for Updating a Cash Flow Statement?
Weekly updates are best for most small businesses. They help you respond quickly to unexpected changes in payments, expenses, or timing gaps.
Should I Include Credit Card Activity in My Cash Flow Statement?
Yes. Include all payments made with credit cards and any repayments to ensure your cash flow reflects true cash obligations and liabilities.
Can Cash Flow Forecasts Replace Budgeting?
No. A cash flow forecast tracks liquidity, while a budget tracks revenue and expense targets. Use both tools together for more complete financial planning.
How Do I Handle Prepaid Expenses in My Cash Flow Statement?
Deduct prepaid expenses from cash when the payment is made, even if the expense is recognized later in your profit and loss statement.
What Tools Are Best for Automating Cash Flow Forecasting?
Platforms like Float, Pulse, and Jirav integrate with accounting software to automate forecasting, offer rolling models, and visualize inflows and outflows clearly.
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