This is general information, not tax or legal advice. Rules and rates change, so check GOV.UK or ask an accountant.
A cash flow statement reports the cash that came into and left your business over a period, and the resulting change in your bank balance. It explains why you can be profitable and still short of cash. See profit vs cash flow.
The three sections
- Operating activities: cash from running the business, such as customer receipts, supplier payments, wages and tax.
- Investing activities: buying or selling long-term assets such as vehicles and equipment.
- Financing activities: loans taken or repaid, owner investment and money taken out by owners.
Added together they give the net change in cash. Add the opening balance to get the closing balance, which should match your bank.
How to read it
- Start with the net change. Did cash go up or down?
- Look at operating cash. A healthy business generates cash from its day-to-day work.
- Check investing. Large purchases can drain cash even in a profitable year.
- Check financing. Is growth funded by borrowing?
- Confirm the closing balance matches your bank accounts.
Why profit and cash differ
- You sold on credit, so profit shows but cash has not arrived.
- You bought stock or equipment, which uses cash but is not a full expense yet.
- You repaid a loan, which uses cash but is not a cost.
- You prepaid a cost, such as annual insurance.
Red flags
- Profit is positive but operating cash is negative.
- Debtors keep growing. See aged receivables.
- Borrowing covers day-to-day costs.
Use it to plan
Look back with the statement and forward with a forecast. See a 13-week cash flow forecast.
How AvrioBooks helps
Run the cash flow statement from the Reports menu, and use the cash flow forecast to look ahead. See the cash flow statement guide and cash flow forecasting software.
Frequently asked questions
What is a cash flow statement?
A report of cash received and paid out over a period, grouped into operating, investing and financing activities.
Why is my profit positive but my bank balance falling?
Common causes are unpaid customer invoices, buying stock or equipment, repaying loans or prepaid costs.
What are the three sections?
Operating, investing and financing activities.
Can I run one in AvrioBooks?
Yes, from the Reports menu.
Keep reading
Payment terms: net 7, 14 or 30, and how to choose
Your payment terms decide when you get paid. Here is how to choose them and word them clearly.
8 November 2026 · 5 min read
Accounts payable basics: managing supplier bills and paying on time
Paying suppliers sounds simple until bills pile up. Here is a simple process that keeps you on time and in control.
8 November 2026 · 6 min read
What is a trial balance, and how to read one
A trial balance is the first check on your books. Here is what it shows and what to do when it does not balance.
3 November 2026 · 5 min read