Establishing a startup is a rather complicated business—about 70% of startups in Israel don’t survive beyond their third year. Therefore, we must do everything we can to succeed. One of the key steps to building a successful startup is managing a cash flow statement and monitoring cash flow.
In this article, we will review what a cash flow statement is, why it is so important, and what are the different components of the cash flow report.

What Does a Cash Flow Statement Include?

A cash flow statement is a financial report that records all the income and expenses of a business over a specific period, usually a quarter or a year. In the report, we document how much money came in and how much went out. The difference between inflows and outflows is usually referred to as cash burn or burn rate.
It’s important to remember: cash flow and profit are not the same! While the income line may include potential or accrued revenues, the cash flow report only includes money that has actually been transferred from the customer (this is the difference between the accrual method used in P&L statements and the cash method used in cash flow statements).

What Is Recorded in the Report?

In the report, we record every income and expense and indicate the source of the income and the use of the expense.
Cash is the lifeblood of the business, and we need to be very careful with it.

Why Is the Cash Flow Report So Important?

• Finger on the Pulse – The report details monthly income and expenses, allowing us to forecast peak points in advance and prepare for possible liquidity challenges.

• New Insights About the Business – Thanks to the breakdown of income and expenses, we can uncover new aspects of the company and perform a more effective SWOT analysis (identifying strengths and weaknesses).

• Increased Profits –
  There are two ways to increase a company’s bottom line: increasing income or reducing expenses.
  In an early-stage startup, reducing expenses is usually the way to go, since revenues don’t exist yet.
  It’s always nice to earn more, but when we’re aware of every detail in our business, we can reduce costs and save wherever possible.

• Better Company Valuation –
  Beyond the startup’s founders, the report gives investors, funds, and lenders the ability to assess the startup’s financial health.
  If the cash flow report is positive and shows growth, it builds trust and gives confidence to existing investors—and helps attract new ones.

• A Legal Requirement –
  Financial reporting regulations in Israel are aligned with international standards (IFRS).
  According to these, the cash flow report is a required financial statement for all companies, including both public and private ones.
  Beyond the legal obligation, the cash flow statement is an essential financial tool.