The short answer: To read a startup cash flow statement, take the three sections in order: operating, investing, then financing. Their totals add up to the net change in cash for the period. In the worked example below, a seed-stage company used $1,046,900 in operations during one quarter, yet its cash balance rose $1,359,400 because a $4,000,000 round closed.
- Operating activities show whether the product burns or produces cash. For most startups this is the line that sets runway.
- Investing activities include cash moved into Treasury bills, which is parked, not spent.
- Financing activities dominate the quarter a round closes, so a rising balance can hide a heavier burn.
- A cash flow statement reports what already happened; a forecast estimates the next 13 weeks to 18 months.
Last updated October 2026.
Founders usually read the income statement first and the bank balance second. The cash flow statement sits between the two and explains why they disagree. It is also the report investors check first after a raise, because it shows how fast the new money is leaving.
This guide walks through each section line by line, explains the net change in cash, and builds a full quarterly statement for an illustrative seed-stage company. It closes with the difference between the statement and a forecast.
What are the three sections of a startup cash flow statement?
A startup cash flow statement has three sections: operating, investing, and financing activities. Each one answers a different question about where cash came from and where it went.
| Section | Typical startup lines | Usual sign at seed stage | Question it answers |
|---|---|---|---|
| Operating activities | Net loss, stock-based compensation, receivables, deferred revenue, payables | Negative | How much does running the product cost in cash? |
| Investing activities | Laptops and servers, purchases or maturities of Treasury bills | Negative, often small | How much cash went into long-lived assets or investments? |
| Financing activities | Preferred stock proceeds, issuance costs, option exercises, loan draws | Positive in a raise quarter, near zero otherwise | Who funded the gap? |
The order matters when reading. Operating cash shows whether the business model works yet. Investing and financing explain how the company paid for the shortfall.
How do you read the operating section line by line?
Read the operating section from net loss down, treating every line below it as a correction from accrual accounting back to cash. Most startup statements use this indirect method.
The corrections fall into two groups. Noncash expenses come first. Stock-based compensation under ASC 718 and depreciation reduce net income without moving any cash, so they are added back.
Working capital follows, and its sign convention trips up most first-time readers:
- An increase in an asset, such as accounts receivable or prepaid software, consumed cash and appears as a negative.
- An increase in a liability, such as accounts payable or deferred revenue, supplied cash and appears as a positive.
- Decreases reverse both signs.
Deferred revenue deserves a second look at any SaaS company. Annual prepayments arrive as cash long before they are earned under ASC 606, so a strong billing quarter can make operating cash look better than the underlying burn. A deeper diagnostic, including cash conversion ratios, appears in our guide to analyzing a cash flow statement.
What belongs in investing activities at a startup?
Investing activities at a startup usually hold equipment purchases and any cash moved into short-term investments. Both reduce the bank balance, though only one of them is spending.
The SEC’s beginner’s guide says investing activities “generally include purchases or sales of long-term assets, such as property, plant and equipment, as well as investment securities.” For a software company, equipment is typically modest: laptops, monitors, and occasionally servers.
Treasury bills are the line that confuses board members. After a raise, many companies place part of the round in bills the company classifies as short-term investments. The purchase shows as an investing outflow. The cash still belongs to the company, and it returns as an investing inflow at maturity.
Reading investing activities therefore means separating the two. Capital spending belongs in the burn calculation. Treasury purchases belong in the liquidity total.
Why does the financing section dominate right after a raise?
Financing dominates after a raise because the round arrives as one large inflow inside a single period. In a seed or Series A quarter, it often exceeds the operating outflow several times over.
The SEC guide describes the section simply: “Typical sources of cash flow include cash raised by selling stocks and bonds or borrowing from banks.” For a venture-backed company, that means preferred stock proceeds, net of legal and other issuance costs, plus small option exercises.
The effect on reading is direct. A quarter with $3,942,800 of financing inflow and $1,046,900 of operating outflow shows cash rising sharply. Nothing about the burn improved. The fair comparison is operating cash against the prior quarter’s operating cash, with financing set aside.
SAFEs add one more wrinkle. The cash arrives when each SAFE is signed and funded. When those SAFEs later convert into preferred stock, no cash moves, so the conversion adds nothing to that quarter’s financing total.
What is the net change in cash, and how does it tie out?
The net change in cash is the sum of the three section totals. Added to the opening balance, it must equal the closing balance on the balance sheet, to the dollar.
In the SEC’s words, “The bottom line of the cash flow statement shows the net increase or decrease in cash for the period.” That bottom line is also the fastest integrity check available to a founder.
Restricted cash is part of the total. FASB’s ASU 2016-18 requires the statement to “explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.” A letter-of-credit deposit backing an office lease is a common startup example.
For private companies, the update took effect for fiscal years beginning after December 15, 2018. When the reconciled total misses the bank and the balance sheet, the break usually sits in an unreconciled account or a cutoff error. Our guide to building startup financial statements covers how the three reports tie together.
What does an example startup cash flow statement look like?
The example below is an illustrative seed-stage SaaS company for the quarter ended September 30, 2026. It closed a $4,000,000 priced seed round in August and placed $1,500,000 in 6-month Treasury bills.
| Line, quarter ended September 30, 2026 | Amount |
|---|---|
| Net loss | ($1,146,300) |
| Stock-based compensation | $38,400 |
| Depreciation and amortization | $21,700 |
| Increase in accounts receivable | ($64,900) |
| Increase in prepaid expenses | ($47,200) |
| Increase in accounts payable and accrued expenses | $58,600 |
| Increase in deferred revenue | $92,800 |
| Net cash used in operating activities | ($1,046,900) |
| Purchases of equipment | ($36,500) |
| Purchases of Treasury bills | ($1,500,000) |
| Net cash used in investing activities | ($1,536,500) |
| Proceeds from seed preferred stock, net of $61,400 issuance costs | $3,938,600 |
| Proceeds from stock option exercises | $4,200 |
| Net cash provided by financing activities | $3,942,800 |
| Net change in cash, cash equivalents, and restricted cash | $1,359,400 |
| Beginning balance, including $50,000 restricted | $1,212,600 |
| Ending balance, including $50,000 restricted | $2,572,000 |
The ending balance ties: $1,212,600 + $1,359,400 = $2,572,000.
What does the worked example tell a founder?
It shows a quarter in which cash rose $1,359,400 while the company burned more than $1,000,000. Four calculations turn the statement into decisions.
- Operating burn. $1,046,900 ÷ 3 months = $348,967 a month.
- Net burn with equipment. ($1,046,900 + $36,500) ÷ 3 = $361,133 a month.
- Liquidity. $2,522,000 of unrestricted cash plus $1,500,000 of Treasury bills = $4,022,000.
- Runway. $4,022,000 ÷ $361,133 = 11.1 months at the current burn.
Financing covered operations 3.8 times in this quarter ($3,942,800 ÷ $1,046,900). Operating cash ran $99,400 lighter than the net loss, and deferred revenue supplied $92,800 of that gap. Annual prepayments, not efficiency, explain most of the difference.
Kevin Cahill reviews this reconciliation with founders before each board meeting. The runway mechanics are covered in our guide to burn rate and runway.
How is the cash flow statement different from a cash flow forecast?
The cash flow statement is historical and follows GAAP; a cash flow forecast is forward-looking and follows management’s assumptions. A company needs both, for different decisions.
| Feature | Cash flow statement | Cash flow forecast |
|---|---|---|
| Time direction | A closed month, quarter, or year | The next 13 weeks to 18 months |
| Rules | GAAP, ASC 230 | Management assumptions |
| Source | The closed ledger in QuickBooks Online or NetSuite | Pipeline, hiring plan, vendor terms |
| Primary reader | Board, investors, auditors | Founder and finance lead |
| Decision it supports | Was the plan executed? | When to raise, hire, or cut |
The statement also calibrates the forecast. Each closed month replaces a forecast month with actuals, and the variance shows which assumptions drifted. Teams on the Continuous Close Method™ produce that statement within days of month-end, so the comparison stays current.
The forecast side is covered in what a cash flow forecast is and the 13-week cash flow forecast. Startups that want both maintained can use our outsourced CFO services.
Sources: SEC, Beginners’ Guide to Financial Statements; FASB, Accounting Standards Update 2016-18, Restricted Cash.
Frequently asked questions
What are the three sections of a cash flow statement?
Operating, investing, and financing activities. Operating covers cash from running the business, investing covers equipment and investment purchases or sales, and financing covers equity raised, debt drawn, and debt repaid. At a seed-stage startup, operating is usually negative and financing is positive in the quarter a round closes.
What is the net change in cash on a cash flow statement?
It is the sum of the operating, investing, and financing totals for the period. Added to the opening balance, it must equal the closing balance of cash, cash equivalents, and restricted cash. In the worked example, $1,212,600 plus $1,359,400 equals $2,572,000.
Why does the financing section dominate right after a raise?
The round lands as one large inflow in a single period. In the example, $3,942,800 of financing covered $1,046,900 of operating outflow 3.8 times, so cash rose even though the burn did not improve. Compare operating cash quarter over quarter with financing set aside.
What does an example startup cash flow statement look like?
It starts with net loss, adds back stock compensation and depreciation, then adjusts for receivables, prepaids, payables, and deferred revenue. Equipment and Treasury bill purchases follow under investing, then preferred stock proceeds net of issuance costs under financing. The total ties to the ending cash balance.
How is the cash flow statement different from a cash flow forecast?
The statement reports a closed period under GAAP and shows what already happened. The forecast projects the next 13 weeks to 18 months from management assumptions and supports raise, hiring, and spending decisions. Each closed month’s statement replaces a forecast month with actuals.
