HOW TO PREPARE CASH FLOW STATEMENT FOR BUSINESSES IN MALAYSIA

Whether you’re a gig worker, hawker stall owner, startup founder or small business entrepreneur, understanding the flow of your money is crucial. While profit might seem like the ultimate goal, it’s your cash flow statement that reveals the true financial health of your business.

In this guide, we’ll break down what a cash flow statement is, how it differs from profit, and why it’s especially crucial for small businesses in Malaysia. We’ll also provide an easy-to-follow method to prepare one and share a practical cash flow example for small business owners.

Why Cash Flow Is the Lifeline of Any Business

Many new entrepreneurs focus on sales and profits, which are certainly important. But a business can be profitable and still run out of money. This is where understanding cash flow versus profit becomes essential.

Profit is the amount left after expenses are subtracted from revenue. However, this is often calculated on an accrual basis, meaning income may be counted even if you haven’t been paid yet. Cash flow, on the other hand, shows the real-time movement of cash in and out of your business bank account.

Cash flow is what keeps your business running day-to-day. You might have RM10,000 in profit on paper, but if clients haven’t paid you yet, you could still be unable to afford rent, inventory or wages. That’s why mastering the cash flow statement is a smart move, especially for local entrepreneurs.

What Is a Cash Flow Statement?

A cash flow statement is one of the three key reports that make up financial statements, alongside the income statement and balance sheet.

• Income Statement: Shows your revenue and expenses over time to reveal profit or loss.
• Balance Sheet: Summarises your assets, liabilities, and equity at a given point.
• Cash Flow Statement: Tracks the movement of actual cash, so you know how much is coming in, how much is going out, and where it’s all going.

A cash flow statement is typically required when applying for loans, attracting investors, or maintaining financial control. While the Malaysia e-Invoicing 2025 framework does not specifically require cash flow statements, adopting e-Invoicing can enhance financial transparency and support more accurate, real-time financial reporting.

The 3 Main Sections of a Cash Flow Statement

If you want to fully understand your cash flow, you need to break it down into three main categories:

1. Operating Activities:

   This includes cash received from customers and cash paid for business expenses such as inventory, rent, wages, and utilities.
   
   For example, a hawker stall selling RM500 worth of food and paying RM200 for ingredients—these transactions fall under operating activities.

2. Investing Activities:

   Here you’ll track investments into or out of your business such as buying new equipment, selling old machinery, purchasing vehicles or laptops.
   
   Example: A gig worker buying a laptop or a micro-business selling old machinery.

3. Financing Activities:

   This section covers loans taken, repayments made, or funds received from investors. It also covers dividend payments.
   
   Example: A startup receiving capital from an angel investor or repaying a bank loan. Even for small businesses, a cash flow example becomes much easier to understand when it’s clearly broken down.

Step-by-Step: How to Prepare a Cash Flow Statement

If you’re wondering how to prepare a cash flow statement, follow these simple steps:

1. Gather your financial data

   Start by gathering your income statement and balance sheet—these serve as the foundation.

2. Start with your net income

   Extract the net profit figure from your income statement.

3. Adjust for non-cash items

   Add back depreciation or amortisation—these are paper expenses that don’t affect cash.

4. Adjust for changes in working capital

   Include changes in inventory, accounts receivable, and payables. For example, if you bought more stock or delayed paying your vendor.

5. Include cash from investing and financing activities

   Include cash used for buying equipment, receiving loans or repaying debts.

6. Calculate your net cash flow

   Total all the inflows and outflows to arrive at your net cash position.

If you’re unsure where to begin, searching for a cash flow example for small business in Malaysia can give you useful templates to follow.

Direct vs Indirect Method: What’s the Difference?

When creating a cash flow statement, there are two approaches:

Direct Method: Lists all cash inflows and outflows from actual transactions (cash received from customers, payments to vendors).

Indirect Method: Begins with net profit and adjusts for non-cash items and working capital changes.

Most businesses in Malaysia—especially SMEs—prefer the indirect method because it aligns easily with existing financial statements.

Common Mistakes to Avoid in Preparing Cash Flow

Even with the best intentions, some frequent errors can lead to confusing or incorrect cash flow statements:

• Mixing up cash flow and profit: Remember, profit doesn’t always mean you’ve got money in the bank.
• Ignoring non-cash expenses: These need to be added back in the indirect method.
• Including unpaid invoices as income: You should only record cash that’s actually been received.
• Leaving out financing activities: Loan repayments and capital injections are crucial parts of your cash flow.

Being aware of these pitfalls helps you produce more accurate and useful statements—an essential part of mastering financial statements.

Tools and Templates to Help You Get Started

Many entrepreneurs feel overwhelmed by accounting, but technology makes it simpler.

• Free Excel or Google Sheets templates: Easily found online and great for manual tracking.
• Cloud-based applications like Quickin: Ideal for automating cash flow monitoring and e-Invoicing, especially for those preparing for the LHDN e-Invoice rollout.

If you’re just starting out, begin with a spreadsheet and gradually transition to software as your business grows.

Final Thoughts: Take Control of Your Cash

Knowing how to prepare a cash flow statement is a powerful skill. It gives you the clarity to make informed decisions, the confidence to plan ahead, and the control to keep your business afloat in uncertain times.

Whether you’re selling food at a night market or running a small e-commerce business, tracking your cash flow can prevent shortfalls, support expansion, and ensure sustainability. Remember, cash is king. Don’t just chase profits—track your cash. Mastering your cash flow is the first step to mastering your money.

Frequently Asked Questions (FAQs):

1. What is a cash flow statement?

   A financial report that shows how much cash goes in and out of your business.

2. Why is a cash flow statement important for my business?

   It helps you manage daily expenses, plan for future growth, and avoid cash shortages.

3. What’s the difference between cash flow and profit?

   Profit is what you earn on paper after expenses. Cash flow is actual money available for spending.

4. Can I prepare a cash flow statement without accounting software?

   Yes. You can use Excel, Google Sheets, or free templates. But tools like Quickin make it easier and more accurate.

5. Is there a standard format for a cash flow statement in Malaysia?

   Yes. Most formats follow global accounting standards, and can be tailored to fit your business size and type.

Ready to get started? Try Quickin today and take control of your business cash.