Preparing a Cash Flow Statement for MSME is one of the easier tasks among the financial statements.
First of all, we need to choose the period - daily/monthly/quarterly/half-yearly/yearly.
Take two data - opening balance i.e start of the period(bank balance and cash in hand) and closing balance i.e end of the period(bank balance and cash in hand).
Balance = Bank balance + Cash in hand
Calculate net cash from the opening and closing balance. It can be positive or negative.
Positive means more cash inflows than cash outflows
Negative means more cash outflows than cash inflows
Add a Cash Inflow heading and Cash Outflow heading.
Cash Inflow - Whatever cash comes in to your business
Cash Outflow - Whatever cash goes out of your business
Note: Take care of depreciation which I have explained in part - I
After you have done everything, the net balance and net cash flow should be equal.
If your net cash flow is negative, then you have a working capital problem.
If your cash flow is negative for continuous periods, then you should aim cost-cutting and process improvement ideas
Business needs to have sufficient cash at disposal for day to day operations to sustain in the competitive environment
Continuous positive net cash flow means more amount sitting idle, look for investment opportunities with high return.
Avoid unnecessary depreciation assets with no value or return