Guide for Cash Flow Statements for Quicken
Jason Weiland
One of the best ways to understand cash flow is to see it in action. Rather than getting lost in abstract concepts, let’s walk through a real-world example of how money moves through a typical service business.
We’ll examine each section of a cash flow statement, see how the numbers work together, and understand what they reveal about the financial health of the business.
A practical example for small service businesses
Meet Kira, a solo marketing consultant who operates as ABC Consulting. Like many independent consultants, she works from home, brings in contractors for larger projects, and juggles both project-based work and monthly retainer clients.
Let’s look at her cash flow statement for January to see how she manages her business finances.
Operating activities
January was a solid month for Kira’s consulting practice.
She collected $12,000 from her project-based clients, who hired her for specific marketing campaigns and strategy work. Her retainer clients, who pay a fixed monthly fee for ongoing marketing support, contributed another $5,000 to her income.
Here’s how this section appears on ABC’s cash flow statement:
As a solo consultant, Kira also watches her expenses carefully.
In January, she paid $4,000 to her network of trusted contractors who help her handle larger projects. Her home office setup includes a dedicated space, leading to a deductible rent portion of $2,000.
She invests in quality tools for her work, spending $500 on professional software subscriptions and $300 on high-speed internet and utilities. Her business insurance cost $200 for the month, and she made a quarterly tax payment of $3,000.
Cash OutflowsAmountContractor payments($4,000)Office rent($2,000)Software subscriptions($500)Internet and utilities($300)Insurance($200)Quarterly tax payment($3,000)Total cash outflows($10,000)
This careful management of expenses resulted in a healthy net operating cash flow of $7,000.
Kira made a significant investment in her business this month by upgrading her laptop to a more powerful model for $2,500. As a marketing consultant who frequently works with design software and video editing tools, having reliable, high-performance equipment is essential for her business.
Here’s how this section appears on ABC’s cash flow statement:
Like many solo consultants, Kira maintains a business credit card and a line of credit to help manage cash flow during slower periods. This month, she paid $1,000 toward her business credit card balance and $200 in interest on her line of credit.
Here’s how this section appears on ABC’s cash flow statement:
ItemAmountBusiness credit card payment($1,000)Line of credit interest($200)Net financing cash flow($1,200)
Putting it all together: a complete cash flow statement
After accounting for all these activities, Kira increased her business’s cash position by $3,300 in January. This healthy increase strengthens her financial buffer and positions her well for future investments in her business.
Here’s how her complete cash flow statement looks for January:
Operating activitiesCash InflowsAmountClient payments$12,000Retainer fees$5,000Total cash inflows$17,000
Cash OutflowsAmountContractor payments($4,000)Office rent($2,000)Software subscriptions($500)Internet and utilities($300)Insurance($200)Quarterly tax payment($3,000)Total cash outflows($10,000)
Financing activitiesItemAmountBusiness credit card payment($1,000)Line of credit interest($200)Net financing cash flow($1,200)
SummaryCategoryAmountNet operating cash flow$7,000Net investing cash flow($2,500)Net financing cash flow($1,200)Net change in cash$3,300
Knowing how to put together a cash flow statement is a great start.
Next, we’ll learn how to read between the lines, discovering what a cash flow statement can tell you about how things are going and how to keep your finances strong while you grow.
Looking at Kira’s January numbers, her net operating cash flow of $7,000 tells us more than just how much money she made. The relationship between her cash inflows ($17,000) and outflows ($10,000) reveals important patterns about her business health.
First, her revenue mix shows she’s built stability into her business model. The $5,000 in retainer fees represents nearly 30% of her monthly income — a reliable foundation that helps her weather slower periods. Meanwhile, her project-based income of $12,000 provides growth potential that can help her scale.
On the expense side, Kira’s biggest operational cost is her contractor payments at $4,000. This flexibility in her cost structure is valuable — she can scale these payments up or down based on her project load, rather than carrying fixed employee costs.
She can also use the current percentage as a baseline to gauge her company’s performance down the road. If her contractor payments climb to 35% or 40% of her revenue, it might be time to evaluate her pricing or project management efficiency.
January’s investing activities show Kira spent $2,500 on a new laptop. While this might seem straightforward, the timing and nature of investing activities can affect your business’s health and direction.
Kira made this purchase during a strong revenue month — smart timing that didn’t strain her cash reserves. But imagine if she’d needed to make this purchase during a slower month, or if she’d had to use her line of credit to fund it. That could signal a potential issue with her business’s ability to fund necessary upgrades and maintenance.
Healthy investing activities in a service business typically follow two patterns:
Regular small investments in tools and technology that maintain or improve your service delivery
Occasional larger investments that enable business growth or efficiency
If you find that you often have to finance essential business tools, or if you have to postpone vital upgrades due to cash constraints, it may be time to revisit your pricing strategy or cost structure.
Kira’s financing activities in January show moderate credit use: a $1,000 payment on her business credit card and $200 in interest on her line of credit. These numbers tell an important story about her business’s financial health.
The relatively small credit card payment suggests she’s not relying heavily on credit for day-to-day operations — a healthy sign. The interest on her line of credit indicates she maintains this financial tool for flexibility, but the modest amount suggests she’s not overly dependent on it.
Warning signs in financing activities include:
Growing credit card balances month over month
Regular use of your line of credit for operational expenses
Increasing interest payments that eat into your margins
Using new credit to pay off existing credit
When we examine Kira’s January statement as a whole, we can see healthy patterns emerging. Her strong operating cash flow ($7,000) comfortably covered both her investment in new equipment ($2,500) and her debt servicing ($1,200), leaving her with a positive net change in cash ($3,300).
This kind of relationship between the three sections is what you want to see in a healthy service business. Your operating activities should generate enough cash to:
Fund regular business investments without relying on credit
Service any existing debt
Build and maintain your cash reserves
If you find yourself borrowing to make essential purchases, or if debt payments are consuming a large portion of your operating cash flow, it’s time to look deeper at your pricing, costs, or business model.
Turning numbers into action
A cash flow statement is only valuable if you use it to make better business decisions. Kira has developed specific targets and strategies that help her transform her monthly numbers into clear action steps.
By watching key metrics and patterns, she can spot potential issues early and take advantage of opportunities when they arise. Here’s how she puts her cash flow insights to work.
Setting healthy cash flow targets
After several years in business, Kira has developed clear targets for her cash flow that help her make confident decisions. She knows that in her consulting business:
Her monthly operating cash flow should be at least $5,000 to maintain healthy growth
Her contractor costs shouldn’t exceed 35% of her monthly revenue
Her fixed costs (rent, software, insurance) should stay under $3,500 monthly
When she misses these targets, she knows exactly what to investigate.
Last October, when her operating cash flow dipped to $3,200, she traced the issue to “scope creep” on two major projects — she delivered more hours than she promised without adjusting the price she charged her clients.
This led her to tighten her project management processes and revise her client contracts.
Managing your business credit strategically
Look again at Kira’s financing activities. She maintains both a business credit card and a line of credit, but she uses them differently:
The credit card covers regular business expenses that can be paid off each month, helping her track spending and earn rewards
The line of credit serves as backup for larger opportunities or unexpected needs
This approach gives her flexibility without creating risky debt. She follows two key rules:
Never carry a credit card balance unless it’s for a specific purchase with a clear payoff timeline
Keep her line of credit mostly unused so it’s available for growth opportunities, not emergencies
January’s positive cash flow gave Kira an opportunity to strengthen her financial foundation. From her $3,300 net increase in cash, she allocated:
$2,000 to her tax savings account
$800 to her cash buffer
$500 to cover upcoming expenses
This disciplined approach to managing surplus cash helps her maintain her target of having 90 days of operating expenses in reserve. She’s learned that this buffer isn’t just about survival — it gives her the confidence to pursue bigger projects and say no to clients who aren’t a good fit.
Using your cash flow statement for growth
Understanding your cash flow isn’t just about staying afloat — it’s about spotting opportunities to grow sustainably. Kira’s January statement shows her business is healthy, but more importantly, it helps her see where and how she can expand.
Let’s look at how she uses these insights to make strategic decisions about investments, revenue, and business operations.
Timing major business investments
Kira’s laptop purchase in January provides a perfect example of strategic investment timing. She made this decision based on three key factors her cash flow statement revealed:
Strong operating cash flow ($7,000) that month
Healthy cash buffer already in place
No major upcoming expenses or slow seasons
This approach to timing investments helps her avoid the common trap of making major purchases during high-revenue months without considering the broader financial picture. She maintains a running “wish list” of business investments, ranked by priority and tagged with minimum cash flow requirements for each purchase.
Identifying new revenue opportunities
Your cash flow statement can reveal opportunities you might be missing. Looking at Kira’s January numbers, a few patterns stand out:
Her project-based revenue ($12,000) came from just three clients
Her retainer fees ($5,000) represent a smaller but stable portion of her income
Her contractor costs suggest capacity for larger projects
She used these insights to identify two growth opportunities:
Converting more project clients to retainer arrangements for steadier income
Taking on larger projects now that she has a reliable contractor network
Kira’s healthy operating cash flow isn’t just about how much she charges – it’s about how she structures her payments. Her cash flow statement helped her refine her approach:
She requires 40% deposits on projects over $5,000 after noticing that larger projects tied up too much working capital
She moved retainer clients to prepayment after seeing delays in monthly collections
She adjusted her hourly rates for smaller projects to account for their higher administrative costs
Even though January was strong, Kira knows from experience that July and December typically bring slower cash flow. Her statement helps her prepare for these predictable variations:
She aims to build additional cash buffer during strong months (like January)
She times non-urgent investments and software renewals for her busiest months
She plans her contractor commitments around known slow periods
Making better business decisions
Running a successful service business means constantly evaluating opportunities, managing resources, and planning for the future. Kira uses her cash flow statement as a decision-making tool that helps her answer critical questions about growing her business, managing her team, and protecting her financial stability.
Let’s look at how she approaches these key decisions.
Kira’s cash flow statement gives her clear signals about when to expand her contractor network. She watches for:
Consistently high operating cash flow ($6,000+ monthly)
Project revenue growing faster than she can handle alone
Regular need to turn down work due to capacity
The statement also helps her determine the type of help she needs. Her current contractor costs ($4,000) are project-based, but if these become consistent monthly expenses, she might consider hiring part-time permanent help instead.
Evaluating new business opportunities
When a potential client approached Kira about a large website project in February, she used her cash flow insights to evaluate the opportunity:
Could she handle the upfront contractor costs given her current cash position?
Would the project’s timeline align with her predicted cash flow patterns?
Would she need to draw on her line of credit to manage the project’s expenses?
This systematic approach helps her say yes to opportunities that will strengthen her business and no to those that might put her cash flow at risk.
Managing fixed vs variable costs
Kira’s January statement shows a healthy balance between fixed costs (rent, software, insurance) and variable costs (contractors). This flexibility helps her maintain profitability even when revenue fluctuates.
She regularly reviews these costs against her cash flow to:
Evaluate whether subscription software is being fully utilized
Consider whether to bring frequently needed contractor services in-house
Look for opportunities to convert fixed costs to variable ones (like using cloud services instead of purchasing hardware)
A strong financial safety net isn’t just about having cash in the bank — it’s about creating multiple buffers against uncertainty. Kira’s cash flow statement helps her maintain several layers of protection:
Her cash buffer for operating expenses
Strategic use of her line of credit
A mix of project and retainer revenue
Flexible contractor relationships that can scale up or down
Regular tax deposits to avoid surprise payments
By actively managing all these elements, she’s built a business that can not only survive unexpected challenges but take advantage of new opportunities when they arise.
From financial document to business compass
Kira’s story shows how a cash flow statement can evolve from an intimidating financial document into an essential business tool. By understanding not just how to read the numbers but how to act on them, she’s created a framework that helps her navigate decisions both big and small.
Whether she’s evaluating a new project, timing a major purchase, or planning for growth, her cash flow statement provides the insights she needs to move forward with confidence.
The same approach can work for your business. Start by understanding your basic cash flow patterns, then gradually build your own set of metrics and decision rules. Over time, you’ll develop an intuitive feel for your business’s financial rhythms and a clearer picture of what each number means for your future growth.
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Posted Aug 28, 2025
Creat a guide for cash flow statements for small businesses for Quicken.
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Jan 15, 2025 - Jan 16, 2025
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