What are the essential financial documents that can demonstrate your business’ ongoing viability? We’ve listed the main reasons potential lenders and investors want to see solid financial statements before committing to your business.
Whether you’re applying for government subsidies, taking out a business loan or seeking investor support, you need to be able to demonstrate your ongoing viability as a business.
As part of this, having the correct financial information at your fingertips is crucial. (In fact, this is good business practice anyway, being just as important for your internal planning and decision-making as it is for potential external partners.)
So, where do you start, and what reports will you need?
The numbers that prove you’re a business with a future
Any lender or government body wants to know that your organisation is on a solid and sustainable path.
As the owner, you may believe in the destiny of your company, but you need the numbers to reinforce this argument. Banks, lenders, and investors are taking a risk in backing you. Because of this, they want to know that you’re capable of making the agreed repayments and that the business is in a financial position to deliver profits and payouts for investors.
Before committing to your business, potential investors will likely want to see:
• Evidence of a healthy sales pipeline and sales revenue
• Manageable debt that’s not eating into your capital
• A positive cashflow position that covers your main costs
• Forecasts showing stability or growth in your revenues
• A meaningful business strategy for the next two to five years of growth
The data you need to plan your future
You can’t run a business on a wing and a prayer. With so many different ways to track and record your business data, there’s no excuse for not being up to speed with your performance, targets, forecasted sales, cashflow, debt, and profits.
This information isn’t just useful when approaching investors and lenders. It’s also vital for your own strategic thinking, business planning and internal decision-making.
Crucial management information includes:
• Targets and budgets for the upcoming period
• Sales and financial performance against these targets
• Basic financial position and health
• Forecasts for future sales, cashflow and end profits
The 5 key reports that define your company’s growth
Today’s cloud accounting software makes it a breeze to produce detailed, current and relevant financial statements. These are the five main statements and reports to focus on:
1. Business plan
This outlines the company’s goals, strategies, and financial projections for future success. It’s your route map for the business journey that lies ahead, and a crucial document when approaching investors.
2. Sales reports and forecasts
These provide a historical summary of past sales data so you can track how you’re performing. Sales forecasts project this data forward to show future sales trends and potential sales growth you may achieve.
3. Revenue forecasts
This is a projection of your expected income or revenue for a specific period. Being able to track and forecast your revenue position is vital when carrying out financial planning and decision-making.
4. Cashflow forecast
This estimates your expected inflows and outflows of cash over a specific period. By forecasting these cash inflows/outflows, you can aim to keep the business in a positive cashflow position (i.e., more cash coming in than going out).
5. Financial statements
The main ones to keep your eye on are your:
- Cashflow statement – your current cashflow position, so you can make the most informed decisions about spending and cost management.
- Balance sheet –your current assets, liabilities, and equity. It’s a snapshot that reflects the company’s financial position at a specific point in time.
- Profit and loss statement (P&L) – a breakdown of the income coming into the business and the expenditure going out. Crucial for managing your profitability.
- Aged debts – categorising and analysing your outstanding customer invoices, based on when they should have been paid. Keeping on top of this helps to speed up payment and improve your cashflow position.d profits
Talk to Pathfinder Solutions about demonstrating your business viability
Having the evidential data to prove you’re a viable and stable enterprise is crucial. These numbers will help you plan your growth and access the investment you need to scale.
We can help you create a detailed business plan, revise your strategy, and produce all the financial and non-financial statements you’ll need to make informed business decisions.
About Pathfinder Solutions
Pathfinder Solutions advisory team members have either owned or managed businesses, or are investors themselves, so we know first-hand the challenges you face in your world.
Sure we’re Accountants, but the best solutions in business come from focusing on more than just the numbers. Our real-world business experience delivers just that.