Financing activities as indicated on the Cash Flow Statement include your business’s cash flow to and from investors, banks, and shareholders. They include, but are not limited to:
- the sale or repurchase of company stock
- dividend payouts to shareholders
- proceeds from and the repayment of debt principal (including capital leases)
- payment of dividend taxes
- additions and changes to loans
These activities are an effective measures of cash flow between your business and your creditors. The “cash flow from financing activities” line of the Cash Flow Statement also shows potential investors and lenders how efficiently your business uses financed cash. As with investing activities, purchases result in a negative number, and sales result in a positive number on the Cash Flow Statement. Financing activities are critical for large organizations that rely on shareholders to keep it operational. If your sole proprietorship consistently operates with minimal debt, you may go entire accounting periods without entering numbers on the “cash flow from financing activities” line. However, it is still important for you to know how these activities affect your cash flow, as these they can significantly offset cash inflows and outflows resulting from operating activities and can help stabilize your business’s cash flow.