How to Read a Cash Flow Statement (And What It Tells You About Your Business)

Understanding your financial reports isn’t just for accountants—it’s essential for running a successful business. Among those reports, your cash flow statement is one of the most powerful tools you can use to monitor business health and make smart decisions.

While your profit and loss statement shows earnings and expenses, the cash flow statement shows something even more critical: how cash moves in and out of your business in real time.

At STP Accounting, we believe every business owner should feel confident reading and interpreting this report. Here’s a breakdown of how it works and what it reveals.

What Is a Cash Flow Statement?

A cash flow statement summarizes all the cash entering and leaving your business over a specific period. It’s divided into three sections:

1. Operating Activities

2. Investing Activities

3. Financing Activities

Together, these show whether your business is generating enough cash to sustain itself, invest in growth, and pay debts.

1. Operating Activities: Your Day-to-Day Cash Flow

This section reflects the core activities of your business—cash earned from sales and spent on operating costs.

Look for:

• Cash received from customers

• Payments made to suppliers or employees

• Tax payments or interest expenses

If you consistently have positive cash flow from operations, that’s a strong sign your business is generating real value and covering its costs.

Negative cash flow here may signal operational issues—even if you’re showing a profit on paper.

2. Investing Activities: Where You’re Putting Money

This part shows the cash used to purchase or sell long-term assets like equipment, vehicles, or investments.

Examples:

• Buying a new delivery van

• Selling an old printer

• Making or redeeming business investments

Negative investing cash flow isn’t always bad—it could mean you’re investing in future growth. But if it’s frequent and large, you’ll want to ensure you have operating cash to support it.

3. Financing Activities: How You Fund the Business

This section shows how your business is financed—either through owner investments, loans, or repayments.

Watch for:

• Loan proceeds or repayments

• Shareholder contributions or withdrawals

• Dividend payments

If financing is the only source of positive cash flow, your business may be relying too heavily on borrowed money. That’s a warning sign to monitor closely.

What the Statement Tells You

Once you understand each section, you can start asking the right questions:

• Is my business generating cash, or just showing paper profits?

• Are my investments supported by solid operations?

• Am I relying too much on loans or owner funding?

• Is my cash position improving month-to-month or getting tighter?

These answers help you take timely action—whether that’s adjusting expenses, accelerating receivables, or rethinking financing.

The cash flow statement isn’t just a formality. It’s a real-time snapshot of your financial reality. Learning how to read it empowers you to lead with confidence, plan better, and avoid unpleasant surprises.

At STP Accounting, we help business owners understand not just the numbers—but the story behind them. If you're unsure what your cash flow statement is telling you, we’re here to help.

Need a cash flow review? Let’s make sure your business stays strong, stable, and ready for growth.