Cash Flow statement-simple structure

 None of us has a crystal ball, in order to predict the future. However, with some accuracy we can try to anticipate it, or simulate.

 Usually we can forward to identify a specific event, which we know, that certainly occur (payment to the vendor, payment for energy, phones, equipment ...).

This will allow to us build an idea about future expenditure and optionally correct our decisions. Something I need to pay immediately, something can wait for a while, something I can afford to leave at the next month, etc.

The initial consideration in compiling the Cash Flow statement is thus the idea of what I want to do, what I want to achieve and in what time frame. Then these images confront by modelling and confront with the result whether it can be realistic.

It is better to correct our decisions on spending at a time when real expenditures not arisen, than after its implementation to hope, that everything somehow resolves. What at this moment is missing, is mostly time allow you to solve situation.  


In Czech Republic specially after year 1989, many people hold any plan of activities as nonsense and plunge into the business head over heels. Many times, the result was catastrophic.  It is necessary to realize, that prediction of cash flow is one of the way of planning process.

So, let's try this practically a hypothetical example:

 You are a budding entrepreneur, and you decided to operate its trade in the garage in front of the family house. Your goods will be office supplies, including school supplies. Target group sales are local authorities, schools and a regular clientele that comes "from the street".

Certain adjustments will have to be in a garage, to become a shop.

You have decided to invest in editing your new establishment in the garage sum of 100 000 Eur.

At the same time, you decided to borrow additional $100 000 from the Bank as long-term loan for two years. The most necessary garage adjustments put back total $110 500 (heating, modifying a sales counter, adding Windows ...).

I think it's obvious that to do this, immediately at the beginning you have a negative cash flow – $100 000 credit from the Bank, you must pay back, and even to add from your own pocket next $10 500.

Fortunately, we have our own $100 000 which can also be insert in the business. But let's see how many will cost a bank loan.


So as you can see, we haven't started yet, and we are waiting for instalment loan each quarter. And we haven't even made a purchase of the item that we want to do business and even not counting a profit that would ensure our payment. Next we have to pay for the power, phone, software, computer, car (we call them OPEX – operating expenses). Our cash flow now has a negative values.

Additionally, assume that you have already agreed with the customer delivery of office supplies to the six months ahead, in total amount of 930 000 €. Your margin of the goods sold shall be 20%.

So let's try to put it all together:


And the result of our assumptions is immediately visible. Our business has insufficient cash flow. With this anticipated business plan will be hard to convince the Bank to provide credit.

A few important things follow from this illustrative example:

1.  Thus, the compiled plan is not sustainable and the length of the projection is also insufficient. We should plan for 1-2 years in advance.

2.  At first glance, we see that there is something wrong in our consideration of the business and we should fix it. Virtually it costs us nothing, just a little time and thought.

3.  It is necessary to do more screenings , with different assumptions and search combination, that will allow us to realize our business profitably.

You need to put great care in addressing individual variants of the business plan.

Remember: If the project needs more money, do not rush unthinkingly ahead with the faith of the best. Typically, it does not appear.

The aim of this brief article is to show how very easily and quickly you can validate assumptions that we put into the business. It's really just a simple example that does not take into account such things as taxes, depreciation, etc. But this is not required in this simple example. For illustration is so simply cash flow for the initial reflections about the business  quite sufficient, if necessary, it is enough for revision of the already running business.

Anyway, the cash flow statement shows exactly where they come from to business resources and how they are consumed during the year. Quickly, accurately and clearly.