I work with a lot of entrepreneurs seeking capital and putting together their financials.The question that always comes up is, what do the financials really need to contain to stand up to the scrutiny of sophisticated investors? Aside from the obvious, which is they need to be believable and the assumptions need to be able to be backed up and defended, there are basically five points that I give an entrepreneur to use like a check list.
#1, have a complete set of financials.This includes historical, en pro-forma, balance sheet, income statement, and statement of cash flows. Always be advised to look forward at least three years, five year if you can, but at least three. For the first year, summarize your information on a monthly basis. For years following that, do it on a quarterly basis because looking that far out is not that good.
#3, include historical financials as far back as you have accurate information. I say this because we work with a lot of companies in the early stages of development, and there may not be historical financial information back very far. So, go back as far as you can but do not go back any further than you have accurate information. Because at the end of the day, accuracy trumps history.
#4, make sure that your business plan and what you say in your business plan in your market analysis and your competitive analysis, make sure those hang together. Because if an investor picks up a business plan that says one thing and then looks at a set of financial that says something else, it is not going to make sense to them, and they will start to ask a lot of questions, and, in turn, the credibility of the whole plan in general is going to be called into question.
#5, dot your I's and cross your T's. Make sure your balance sheet balances. Make sure your costs are properly categorized. Make sure that the investor can take your three financial statements and do a flow-through analysis, and it makes sense to them. Because, at the end of the day, our investors see a lot of business plans, and what you do not want to do is give them an excuse to pass on yours.
When putting together financial statements, I always recommend that is an entrepreneur has questions, to give us a call.

Subscribe to Videos from The Capital MatchPoint