The finances of a company are always the most important, especially to potential investors. Whether you are just starting out or have been operating for a while, if you’re looking for funding you need to provide a clear picture of your financial management.
New businesses need funding just to get going. If this is where your business is at, you’ll need to provide a detailed analysis of the costs involved in getting the business started. This should include registration costs, license and permit application fees, insurance costs and the budgeted amount for renting business premises, connecting utilities and fitting out your offices.
Identify your fixed costs for each month and lay them out in a spreadsheet or budget template. Fixed costs include regular overhead costs such as rent, mortgage, utilities, salaries, telephone costs, even though these may vary from month to month. If your inventory costs remain more or less the same, these are also included in fixed costs.
This is usually the biggest expense for new businesses, or companies taking on an expansion into a new field or project. Capital items can include manufacturing equipment, buildings, transportation vehicles and electronic equipment such as computers, fax machines, copiers and telephone systems. The IRS provides detailed lists of the items that can be classed as capital expenditures and depreciated over a period of time.
The cost of manufacturing the products you sell depends on the price of raw materials, the cost of labor used for production, and the expenditure associated with housing and managing your inventory. Provide details of the quantity of items you expect to manufacture each month or year, and the amount of money you need to have on hand to cover the costs incurred before you sell the products. Give information about the potential growth of the business and how you plan to fund manufacturing growth.
Projecting your sales figures takes a sound knowledge of your target market, data on the sales quantities and prices of competitors’ products or services and a very clear understanding of how you will achieve sales. Give your expected sales for the first year on a month-by-month basis, and offer three scenarios: best case, expected scenario and worst case. This will enable potential shareholders to understand how long their money needs to be available before they can expect to see a return on investment.
Break Even Analysis
Calculate when you can expect the company and the investors to break even. You can do this by dividing your fixed costs for the first year by your projected sales for the first year, and multiplying the result by 12 months. This will tell your potential investors how many months they can expect your business to take before it breaks even.
Give details of the systems you use for financial management, the levels of authority senior employees have to bind the company financially. Include with this section a balance sheet, if you are already operational, or a detailed income and expenditure budget if you are not yet operating.