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Understand Cash Flow Statement and Find Your Way Through Construction Finances

Updated: Mar 20

Are you curious about where your money goes in your construction business? Look no further than the cash flow statement. In this engaging and easy-to-understand article, we will explore the ins and outs of the cash flow statement. You will discover its significance and how it can empower you to take control of your finances.

Table of Content:

cash flow statement

What is a Cash Flow Statement?

Think of your cash flow statement as a map that shows how money flows in and out of your business. The cash flow statement is not like the balance sheet or income statement. It focuses solely on actual cash movement, showing how cash enters and exits your construction business. Tracking cash flow provides information about your financial activities, giving you insights into how money comes in and goes out of your business.

Why is Cash Flow Statement Important?

A cash flow statement is like a roadmap for your business's cash flow. Let's break this down into digestible parts:

  • What's Happening to Your Cash? A cash flow statement shows how your business generates and uses money. Think of it like a photo capturing your cash's journey in and out of your business.

  • How Are Your Decisions Affecting Cash Flow? The cash flow statement doesn't just track money. It also reveals how decisions in operations, investments, and financing affect your cash. It's like a weather forecast, helping you predict cash conditions.

  • What's Your Cash Position? By digging into your cash flow statement, you can gauge your company's cash standing. It's like a treasure map, highlighting areas that could be improved for a healthier cash flow.

  • In a nutshell, a cash flow statement tells your business' cash story. It's a powerful tool that can help you navigate your business finances.

How to Analyze the Cash Flow Statement

The cash flow statement provides valuable information about your business's financial activities. Let's explore how to interpret the different sections:

Operating Cash Flow:

This section shows the cash generated or used in day-to-day operations. A positive figure indicates that your business is generating enough cash from its core activities. Examples of operating cash flows include:

  • Cash received from customers for completed construction projects

  • Cash paid to suppliers for materials and equipment

  • Payments for subcontractor services

  • Salary and wage payments to construction workers

  • Operating expenses like rent, utilities, and insurance

Investing Cash Flow:

Here, you'll find information about cash flows related to investments. It helps assess your investment decisions and their impact on your cash position. Examples of investing cash flows include:

  • Cash used for purchasing heavy machinery and equipment

  • Cash invested in acquiring land or properties for future development

  • Proceeds from the sale of unused construction equipment

  • Investments in research and development for innovative construction techniques

financing cash flow

Financing Cash Flow:

This section highlights cash flows associated with financing activities specific to construction businesses. It provides insights into your funding sources and debt management. Relevant examples include:

  • Cash received from bank loans for project financing

  • Proceeds from issuing bonds or obtaining project financing

  • Cash paid for the repayment of project loans or interest

  • Dividend payments to shareholders or business owners

"How do I prepare a cash flow statement?"

Direct vs. Indirect Cash Flow Method

Preparing a cash flow statement means summarizing the money coming in and going out of your business. It's different from the balance sheet and income statement because it focuses only on cash transactions. There are two ways to calculate cash activity: the direct method and the indirect method.

Direct Method

With the direct method, you add up all the cash transactions during a specific period. This includes money you pay to suppliers, money you receive from customers, and money you spend on payroll. To figure out these amounts, you look at different accounts in your records and see how they change over time.

Indirect Method

The indirect method starts with your income statement and makes adjustments to find the cash activity. This includes changes to earnings before interest and taxes (EBIT) and nonoperating activities that don't affect your cash flow directly.

By choosing either the direct or indirect method, you can create a cash flow statement that shows the money coming in and going out of your business. This statement gives you a clear view of your cash position and helps you make smart financial decisions.

The Power of a Cash Flow Statement Example

Creating a cash flow statement from scratch can be complex. Luckily, there are cash flow statement templates available to simplify the process. Let's look at an example of a cash flow statement from a made-up construction company that the CFMA has given us:

statement of cashflow templates

This example shows the breakdown of cash inflows and outflows. It provides a snapshot of how cash flows through the company, allowing you to spot trends and make informed decisions.

How Can CCA Simplify Your Cash Flow Management?

At Construction Cost Accounting (CCA), we understand the unique financial challenges faced by construction businesses. Our expert construction bookkeeping services simplify your cash flow management, ensuring accurate and timely financial reporting.

With CCA, you can:

  • Gain peace of mind and enjoy optimized financial processes.

  • Access expert guidance in interpreting your cash flow statement.

  • Make strategic financial decisions tailored to your updated cash flow statement.

In Conclusion,

Understanding and analyzing your cash flow statement is important for managing the financial health of your construction business. By examining the operating, investing, and financing cash flow sections, you can learn how money flows in and out of your business. This knowledge helps you make smart decisions to improve your financial situation.

At Construction Cost Accounting (CCA), we specialize in helping construction businesses with their finances. Our team can assist you with preparing and analyzing your cash flow statement. We ensure accurate reporting and provide tailored solutions for your needs.

Don't let financial challenges overwhelm you. Contact CCA today through our contact page to learn more about our construction bookkeeping services. Discover how we can support your business's financial success.

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