6 Financial Statements Startups Need With Examples
Pitching an investor or financial institution with appropriate financial statements to fund a startup is crucial for every entrepreneur.
What approach do you take to influence the investors? Your business model? What is your USP? And how are you planning to use the resources invested without having cash flow problems? These are some questions that every investor ponders upon before finalizing their decision.
You must ensure that your business pitch or plan includes the answers to the above questions. Now, here’s the thing- the most important part of a business plan that’ll help you seal the deal is the financial statements. Yes, you read it right! Understand that investors desire high returns on their investments.
The company’s financial statements will help grab investors’ attention and prove its creditworthiness. In short, entrepreneurs need to create a “Pitch Deck” to help potential investors learn about the business plan, use of resources, and traction.
This article will discuss the financial statements you need and a few tips to make these statements attractive.
Financial Statements You’ll Need
Depending on the client you are pitching and your technical expertise, you may need the following statements.
- A startup budget or projected cash flow statement
- A startup cost worksheet
- A pro forma or projected income statement
- A pro forma or projected balance sheet
In addition to these, the investor may also want to have a look at the following statements:
- Break-even Analysis
- Sources and uses of fund statement
Remember that startups do not have exact figures to showcase their progress and revenue. Therefore, you need to work with assumed or estimated figures to sell the business plan.
Creating the statements mentioned above can be daunting if you do not have accounting skills or knowledge about the country’s business law. Moreover, the chances of mistakes in the sheets will also be higher. Luckily, you can avoid accounting mistakes by outsourcing business processes.
Preparing financial statements with the help of outsourced accounting services will ensure accuracy and transparency. Moreover, outsourcing will be more cost-effective than creating an in-house accounting team.
The service providers generally include practising accounts and financial experts. So, they can assist with all your accounting needs and guide you in business support strategies.
The Correct Order Of These Statements
To ensure minimal mistakes in the statements and overall business plan, you need to work in the correct order. As you work with estimated figures, not following a proper sequence will likely affect its accuracy and transparency.
The trick to creating realistic statements is overestimating expenses and underestimating income. Believe it or not, this trick is especially helpful in the first two years of the pitch deck. That being said, let’s learn the correct order of statements!
1. Startup Budget
The startup budget is similar to a projected cash flow statement. The investors would like to know your estimated monthly expense, working capital, and revenue plan, including the time required to begin sales. A budget will help them understand your plan and how you will stick to it.
A few important pieces of information that you must include in the startup budget are:
- The product or service you are selling, price, and expected volumes.
- Key expenses, the number of employees, and marketing strategy to maintain the budget.
It is also noteworthy that a budget sheet is carried forward for three years. It gives an overview of your strategy to tame down the monthly expenses and provide ROI.
2. Startup Cost Worksheet
The startup cost worksheet helps determine the purchases you need to make to commence the business operations. Some call this sheet “Day One Statement” because it includes all the major expenses you will likely incur on the first day of business. It typically includes:
- Cost of office equipment, computers, VoIP, or other machinery.
- Facilities cost such as insurance deposits and utility bills.
- Legal fees of permits and licenses.
- Cost to set up the company domain.
- Advertising materials include business cards, merch, brochures, signs, and more.
3. Income Statement
After completing the startup budget and cost sheet, you need to use their data to create a profit, loss, or income statement.
The statement can be of any set period, i.e., monthly, quarterly, or annually.
You can do this conveniently using this consolidated P&L statement from LiveFlow, which combines Profit and Loss accounts for faster financial reporting.
As your business is yet to begin its operations, the statement is created on the estimated figures. You need to determine the sources of income that can help you overcome the startup cost.
Additionally, it would help to calculate the estimated tax that you have to pay at the end of the financial year. You also need to include the expected exemption that your business will get.
4. Beginning Balance Sheet
The balance sheet includes all the business assets, liabilities, and shareholders’ equity at a specific time period. It helps learn about the exact position of the company and create a better budget in the future.
However, as startups do not have actual figures that can help determine the company’s position, preparing this particular sheet becomes challenging.
That’s why you should consider working with financial experts, as they can help create a realistic balance sheet. Also, keep in mind that the date of the beginning balance sheet is the same as the date of business commencement.
5. Break-Even Analysis
As mentioned above, some investors may ask for a break-even analysis sheet. It will help you determine the price point that will cover the fixed costs and start making profits.
It is generally shown with the help of a graph where the x-axis represents the sales volume, and the y-axis represents the revenue. The point where the x and y intersect is the break-even point indicating the income earned to cover the cost.
6. Sources And Use Of Fund Statement
Typically the sources and uses of funds are prepared by large businesses. However, you can create a simplified version of this statement to show the fundings you already have, the initial finances you need, and for what purpose.
It is relatively an easy statement to prepare. You simply need to add the working capital, collateral cost, and other funding sources.
The Bottom Line
Every potential investor is interested in learning where and how the company uses its resources.
By providing brief information about the startup plan, objective and financial records, the chances of getting funding elevates. Therefore, you should bear in mind the information mentioned above and take appropriate actions.