Home
>
Top Quick Tips
>
10 Steps for Simplifying Business Plan Financial Statements

10 Steps for Simplifying Business Plan Financial Statements

For most business owners and entrepreneurs, preparing, and communicating the financial statement section of a business plan is like trying to give driving directions to someone who doesn't speak the same language.

"Numbers" is the language most investors speak. But, it is also the language that many business owners and entrepreneurs don't speak or understand.

So how do you bridge this gap?

1) Understand there is a difference between "crunching" or preparing the financial statements and presenting them.

Preparing business plan financial statements often requires expert knowledge of double-entry accounting, taxes, merger and acquisition accounting, and finance. Skills most business owners or entrepreneurs don't have, except for perhaps the most seasoned or those with accounting backgrounds. Presenting the numbers, however, only requires that you understand how what you plan to do translates into cash; and, what the potential financial risks for the business are, and how you'll minimize them. If you cannot demonstrate that you understand these, then why would an investor ever give you money?

2) Get help early on.

Okay so you don't have any money to hire a CPA or an accountant, and they just won't do it for nothing. Reach out to your local college. Find the head of the accounting department or an accounting professor. Then, see how your project might be used to help the class learn about accounting, starting a business, or building financial models. The point is; you need someone who understands how to build projected financial statements based on your specific plans for the business. It is also important to find someone who can help you understand your financial statements.

3) Know the kind of investor you are seeking.

This is the same as a writer taking the time to know the audience before writing a book. For example, a banker puts more weight on the business' liquidity, collateral, and ability to convert assets into cash quickly if the business runs into trouble and a loan is called. The emphasis on these financial measures is different for a venture capitalist whose interest is more on how quickly your business can grow, the potential future cash flow it can generate, and the potential for cashing out at an amount much higher than the initial investment.

4) Present only the numbers and measures most important to your type or types of investors in the body of your business plan.

Save the more detailed financial statements for the appendix and due diligence stage. Of course you need detailed financial statements and projections to support your business plan, but don't think you need to share them with potential investors upfront. Investors are more interested in seeing if a few key numbers and financial measures make sense and that they support your strategies before they waste time digging through your supporting data. If they are interested in moving forward with you, believe me, they will dig into your financial statements.

5) Use graphs and tables wisely to present financial information.

Graphs are great for presenting trends and comparisons. Keep them simple and uncluttered. Be sure headings, labels, axis tabs, and so on are clear and legible. Nothing is better than a great graph or table to convey a message clearly and quickly. But remember, a bad graph or table can create much damage and confusion too.

6) Check you numbers.

Like typos, a wrong number can shatter your credibility instantly. It can cause your potential investors to lose confidence in your ability, or to question your understanding of the business. Be sure the numbers in your plan agree to the correct model or version of your financial plan. Verify the numbers in your business plan agree to all supporting documents.

7) Always include a statement of the sources and uses of cash.

If you have teenagers, I'm sure you always ask them where they're going to spend the money you're about to give them, before you hand the money over to them. The Statement of Sources and Uses does the same for investors. It tells potential investors how you plan to use their money. The statement accounts for all the money coming into the deal, whether it is bank debt, seller notes, personal cash, cash proceeds from the sale of stock, and so on. It then explains how you intend to use this money, whether it is to buy an existing business, buy certain assets, payoff existing debt, or payoff certain start-up liabilities, fees, and expenses.

8) Include all three fundamental financial statements: income statement, balance sheet and cash flow.

Don't just provide potential investors with an income statement, it doesn't give them the complete story. Also, be sure that all financial statements conform to Generally Accepted Accounting Principals or GAAP. Include at least three years of actual historical financial information, if available, and five years of projected financial statements. Although no one expects you to be able to predict the future with absolute certainty, projections do provide insight into your thought process, assumptions, and understanding of the business and its markets.

9) Maintain a good financial model capable of running sensitivity analyses to show how your projected results will change as your assumptions change.

This allows you and your investors to identify which assumptions are most critical to your future performance. Each critical assumption needs evidence to support it. Also, include in your model benchmark comparisons to other companies in your industry. Compare things like revenues per employee, gross margin per employee, gross margin as a percentage of revenues, and various expense and balance sheet ratios.

10) Use footnotes and descriptions to explain how key numbers were derived or the specific assumptions behind them.

As much as possible, keep these short and to the point. Don't get carried away footnoting every number. Footnote only key numbers or unusual items.

At the end of the day, more business deals are not consummated because investors don't feel like they can trust the numbers for one reason or another. Spend the time, effort and money to communicate your financial statements clearly and convincingly. It can be the key to making your deal a reality.

Mike Elia is a chief financial officer and an advisor to venture capitalists and leverage buyout specialists. For more information about business plans and raising capital for your business or to review his business plan manual, visit business plan secrets revealed.

disinfecting cleaning services Winnetka ..

In The News:

Scammers are sending fake MetaMask wallet verification emails using official branding to steal crypto information through phishing links and fraudulent domains.

Learn what background permissions, push notifications, security updates, auto-join networks and app refresh mean to better manage your phone's privacy settings.

Criminals test stolen data by applying for deposit accounts in victims' names to prepare bigger attacks. Learn why banks won't share fraud details.

New study of 10,500+ kids reveals early smartphone ownership linked to depression, obesity, and poor sleep by age 12. Earlier phones mean higher risks.

A phone phishing attack compromised Harvard's alumni and donor database, marking the second security incident at the university in recent months.

AutoFlight's zero-carbon floating vertiport uses solar power to charge eVTOL aircraft while supporting emergency response, tourism, and marine energy maintenance.

A new phone return scam targets recent buyers with fake carrier calls. Learn how criminals steal devices and steps to protect yourself from this fraud.

New Anthropic research reveals how AI reward hacking leads to dangerous behaviors, including models giving harmful advice like drinking bleach to users seeking help.

The Fox News AI Newsletter gives readers the latest AI technology advancements, covering the challenges and opportunities AI presents.

Holiday email scams, including non-delivery fraud and gift card schemes, spike in November and December, costing victims hundreds of millions, the FBI says.

Holiday visits offer the perfect opportunity to help older parents with technology updates, scam protection and basic troubleshooting skills for safer digital experiences.

Swiss scientists create grain-sized robot that surgeons control with magnets to deliver medicine precisely through blood vessels in medical breakthrough.

Researchers exploited WhatsApp's API vulnerability to scrape 3.5 billion phone numbers. Learn how this massive data breach happened and protect yourself.

Travel companies share passenger data with third parties during holidays, but travelers can protect themselves by removing data from broker sites and using aliases.

Xpeng's humanoid robot moves so realistically that crowds believed it was fake, marking a major advancement in robotics technology ahead of 2026 commercial launch.

Researchers discover phishing scam using invisible characters to evade email security, with protection tips including password managers and two-factor authentication.

iPhone and Android users can reduce battery drain and data usage by restricting Background App Refresh to Wi-Fi connections instead of mobile networks.

Scammers nearly stole an Apple account by exploiting the support system with authentic-looking tickets and phone calls, users can protect themselves with safety steps.

FoloToy restored sales of its AI teddy bear Kumma after a weeklong suspension following safety group findings of risky and inappropriate responses to children.

Threat intelligence firm Synthient uncovers one of the largest password exposures ever, prompting immediate security recommendations.

Viral video shared by Elon Musk shows Tesla's Optimus humanoid robots performing tasks from cooking to construction, garnering over 58.5 million views on social media.

Chinese hackers used Anthropic's Claude AI to launch autonomous cyberattacks on 30 organizations worldwide, marking a major shift in cybersecurity threats.

Apple's new Sleep Score feature gives you a rating for your nightly rest quality. Learn how to set it up on your Apple Watch and iPhone today.

Essential phone settings to enable before losing your device, including Find My network, location services and security features for iPhone and Android.

The Fox News AI Newsletter gives readers the latest AI technology advancements, covering the challenges and opportunities AI presents.

10 Steps for Simplifying Business Plan Financial Statements

Top Quick Tips