When you are preparing a solid business plan to present to a bank or other investors as you get set to launch your small firm. The financial reporting statements are a crucial component of the plan.
While you may be adept at starting a business and marketing your goods or services, are you aware of the steps you must take in terms of your finances?
Organizing Financial Reporting Statements
- Work on your starting costs worksheet and startup budget first. You will have to estimate the number of things.
- To paint a more accurate picture of your organization throughout the first year or two, the strategy is to exaggerate expenses and underestimate income.
- Next, work on a first-year profit-and-loss statement. An investor will undoubtedly request this one. Investors also prefer to see a starting balance sheet, although it won’t be true.
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About Financial Reporting
It is challenging to run a fresh startup. A long hour, a ton of labor, and meticulous planning are required.
But the creation of accurate financial statements is among the most crucial actions you can take. Why? You, your board, your team, and your investors can only understand where you stand if you do this.
Budgeting and analysis are both aided by effective financial reporting.
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Financial Reporting Statements You Will Need as a Startup
Depending on the demands of your investor and your level of technical expertise, you might require several statements.
The statements that you will undoubtedly require are:
- A cash flow statement or a starting budget
- A spreadsheet for startup costs
- An estimated profit-and-loss statement in pro forma
- An estimated pro forma balance sheet.
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9 Financial Reporting Statements Required by Investors
Some investors may request a cash flow statement, sources, and uses of funds.
Let’s go over these assertions so you will be able to give them if necessary.
1. Budget for a New Business
A startup budget is more speculative than a forecasted cash flow statement.
My budget, or the amount I expect to earn and spend each month, is what my lender is interested in learning about. Lenders seek evidence you can stick to a spending plan and won’t go beyond.
They also want to know how much working capital you will need to start your business, as well as how long it will take you to generate a positive cash flow (bring in more money than you are spending).
Specify the following in your budget:
- What goods or services you are selling, along with their costs and expected demand?
- Important factors affecting costs are the number of personnel you will require and your marketing initiatives.
To show your lender how you intend to raise the money to make your monthly loan payments, a standard budget worksheet should span three years.
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2. Worksheet for Startup Costs
A startup costs worksheet provides an answer to the query “What do you need the money for?”. It lists every purchase you’ll have to make before you can start doing business.
Since it contains everything you will need on your first day of operation, I refer to this statement as a “Day One” statement.
Include:
- Costs related to facilities, such as insurance and utility deposits
- laptops, phones, and office supplies
- supplies and promotional items, such as business cards and signs
- setup costs for your company’s website and email
- licensing and permit costs.
3. Income Statement and Profit and Loss Statement
You should be able to finish a profit and loss or income statement once you have finished the monthly budget and have obtained additional data. This statement summarizes your company’s operations for a given time frame, such as a month, quarter, or year.
You must mention all of your sources in order to calculate your gross revenue during that period for this statement. List all expenses for the same period after that.
This statement, which projects your estimations into the future, I refer to it as a projected P&L because you haven’t even begun.
This statement compiles all of your sources of revenue, as well as your annual profit or loss and the amount of tax you owe.
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4. Breakeven Evaluation
A break-even analysis illustrates to your investor that you are aware of the price that will cover your fixed costs or the point at which you will turn a profit. Companies that produce mostly used break-even analysis or sell products or to determine the appropriate pricing for a good or service.
Sales volume is typically shown as a graph, and they represent revenue on the Y-axis. The costs that you must pay (the fixed and variable costs) are then added. The point at which costs are recovered is known as the break-even point.
For businesses that provide services, this study might be helpful in demonstrating an overall profit point for particular services. Make sure you can explain any break-even analysis you do.
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5. Introductory Balance Sheet
Even if there is not much information to add, creating a startup balance sheet might be challenging. The balance sheet displays the worth of the startup assets you’ve bought, the total debt you have to lenders and other creditors, as well as any initial investments you’ve made. The day I opened for business is the date I used in the worksheet.
6. Statement of the Funds’ Sources and Uses
However, you can make a slightly different, straightforward statement to show your lender what you need the money for, what sources you already have, and what needs financing still. Large businesses use sources and uses of funds statements in their annual reports.
List all of your startup and working capital (ongoing cash requirements), the amount of collateral you will bring to the company, other sources of finance, and the amount you need to borrow in this statement.
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7. A Business Requirements Document (optional)
Similar to a proposal document, a business needs a document for larger and more sophisticated projects or startups. It provides a thorough picture of the undertaking or company plan. They cover the project that will make use of the financial statements in more detail.
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8. Financial statements should be included in your business plan.
To present to a bank or other business lender, you will need a comprehensive startup business plan. A crucial element of this plan is the financial statements. In the executive summary, highlight the key aspects, and provide all financial section statements.
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9. Lastly, check for errors!
Check this list before submitting your initial company plan and financial documents. Avoid these typical business plan errors!
Verify the uniformity and accuracy of all the numbers. Make sure the quantities you are asking for are clear and consistent throughout every section of your business plan.
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Conclusion
These financial assertions that are required by investors like Statement of Resources and Uses and Break-Even Analysis are all part of the financial reporting system.
With the whole of these financial reporting systems in place, your business is good to go. Ready investors will be willing to invest once all the systems are in place.
