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1. 10 Steps for Simplifying Business Plan Financial Statements
Small Business Planning
10 Tips for
Simplifying
Business Plan
Financial
Statements

2. 10 Steps for Simplifying Business Plan Financial Statements
Small Business Planning
For tips on simplifying business plan financial statements
that are sure to convince investors to fund your business,
click here
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.

3. 10 Steps for Simplifying Business Plan Financial Statements
Small Business Planning
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

4. 10 Steps for Simplifying Business Plan Financial Statements
Small Business Planning
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

5. 10 Steps for Simplifying Business Plan Financial Statements
Small Business Planning
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.

6. 10 Steps for Simplifying Business Plan Financial Statements
Small Business Planning
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. 10 Steps for Simplifying Business Plan Financial Statements
Small Business Planning
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. 10 Steps for Simplifying Business Plan Financial Statements
Small Business Planning
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. 10 Steps for Simplifying Business Plan Financial Statements
Small Business Planning
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.

10. 10 Steps for Simplifying Business Plan Financial Statements
Small Business Planning
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.
For tips on simplifying business plan financial statements
that are sure to convince investors to fund your business,
click here

11. 10 Steps for Simplifying Business Plan Financial Statements
Small Business Planning
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.
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