A key part of getting a startup off the ground is securing funding, and in many cases, this means wooing investors with an enticing pitch. Any pitch to seed investors will likely include encouraging stories relating to the founders' histories and their vision for the business. This is all very important, but the rest of what investors need to know is contained within the company's financials.
Documents like balance sheets and income statements give investors a detailed look at how a company has performed or where it plans to be in the near future. But just as important is the story that isn't told on paper, and the one that investors will scrutinize in any pitch meeting. Without putting together comprehensive financial statements and understanding them from all angles, founders may find themselves coming away from pitches empty-handed.
For entrepreneurs looking for funding in a private business venture, standards vary in terms of what exactly to include. However, most investors will likely expect a balance sheet before signing any checks. This can either be current or pro forma, which is reserved for companies that have not yet been created and whose financials are based on assumptions. The balance sheet should list what a company owns and what it owes - its assets and liabilities. Subtracting the latter from the former provides an estimate of the equity owned by shareholders.
Whether the company has already been founded or is presenting these statements pro forma, the balance sheet should give investors a glimpse at the prospects of a company. But beyond face value, prospective shareholders are sure to scrutinize the balance sheet in any of the following ways:
Of course, investors will want to know how you plan to make money before extending financing. This part of the story can be told in the income statement, but even with minute details on earnings and losses, this document needs to stand up to intense scrutiny.
Investors will ask tough questions of even the most confident pitches, and without a full understanding of your company's financial standing, answers are hard to come by. Talk to Consero about how they can provide more than meets the eye in financial statements.