This paper researches a cash flow statement and the benefits of creating one for small and medium enterprises. The goal is to determine the importance of cash flow statements and their significance for managing a business in small and medium enterprises in the Republic of Croatia. This paper is based on the analysis and synthesis of primary data sources that are books, acts, and regulations, and professional articles dealing with financial reporting. According to the Accounting Act, micro and small enterprises are obligors of Croatian standards of financial reporting. They are not required to make cash flow statements, while medium enterprises are required. To run a business successfully information is necessary, and a significant amount of that information is created in accounting and presented in financial statements. All financial statements are interconnected, and for making quality and rational business decisions it is necessary to understand the information presented in financial statements. The cash flow statement is one of the basic financial statements. It can be created using direct or indirect method and it shows cash inflow and cash outflow classified as cash flow from operations, investing, and financing activities. When analyzing financial reports of a business it is necessary to include cash flow statement because of its low susceptibility to data manipulation. Despite that, the cash flow statement of micro and small enterprises should be studied differently than in medium enterprises because of different law obligations. The reason for a different legal framework can be a different number of external users or the importance of internal versus external users.