Here is the situation that catches people out. You invoice $40,000 in March. Your Profit & Loss records $40,000 of revenue in March, and March looks like a good month. Your customer pays on 60-day terms, so the money arrives in May. In the meantime payroll runs twice, rent goes out twice, and your suppliers want paying.

Nothing has gone wrong. You are profitable and you are also short of cash. That gap is what the cash flow statement exists to show.

The three sections

A cash flow statement splits movement into three activities. Knowing which section a number lives in tells you what kind of problem or opportunity it represents.

Operating activities

Cash generated or consumed by running the business. It starts from net profit and then adjusts for two things:

  • Non-cash charges.Depreciation reduced your profit but no money left the building this month, so it's added back.
  • Working capital timing.Revenue you've booked but not collected reduces cash relative to profit. Costs you've incurred but not paid increase it. This is where your AR and AP credit terms show up.

This is the section that matters most. A business with consistently negative operating cash flow is consuming money to exist, whatever the P&L says.

Investing activities

Money spent on assets — equipment, vehicles, fit-out — and any proceeds from selling them. These hit cash in full when you buy, even though the P&L only sees the depreciation spread over the asset's useful life.

It's a common surprise: a $60,000 van costs you $60,000 of cash this month but perhaps $1,000 a month of profit. The two statements are telling you different, equally true things.

Financing activities

Money from lenders and investors, and money going back to them. Loan draws in, repayments out, investment in, dividends out.

Note that a loan repayment splits: the interest portion is an expense on your P&L, the principal portion is not — it just reduces cash and reduces the liability. Home-made models frequently get this wrong in one direction or the other.

Credit terms are the lever

If you take one thing from this guide, take this: the single biggest driver of your cash position is when money moves, not how much of it there is.

  • Your AR termshow long customers take to pay you. Shorter is better, and it's usually negotiable.
  • Your AP termshow long you take to pay suppliers. Longer helps you, within reason.

Shifting AR from 60 days to 30 can transform a cash-constrained business without changing a single price. In Feasy Pro these live in Cash Flow Assumptions, and changing them regenerates every month of the statement.

What to look at first

  1. The lowest point.Find the month where your closing cash balance is smallest. That's your real constraint. Feasy Pro's Overview dashboard names it for you rather than making you hunt.
  2. Whether it's ever negative.A negative projected balance means insolvency unless something changes. Better to discover that now.
  3. Operating cash flow over time.Is the business itself becoming cash-generative, or is the trend flat while financing props it up?
  4. The runway.How many months does the current balance survive at the projected burn? Under six is uncomfortable; under three is an emergency.

A rule of thumb. Arrange financing when you don't need it. A line of credit organised four months ahead is routine business banking. The same request three weeks before you run out is a distress signal, and it gets priced accordingly.

Look monthly, not annually

Annual totals hide the problem entirely. A business can show a positive full-year cash movement and still be unable to pay its staff in month seven. Seasonal businesses are the obvious case, but any business with lumpy invoicing has the same exposure.

This is why every statement in Feasy Pro has an annual ↔ monthly toggle. The annual view is what you present; the monthly view is what you manage from.

What to do next

Open your cash flow statement, switch to monthly, and find the lowest balance. Then work out which of three levers closes the gap: collect faster, spend later, or borrow earlier.

If you haven't built the model yet, start with forecasting revenue — cash flow is downstream of it. If you have, the metrics dashboard turns the same data into runway and break-even figures you can quote from memory.