Making Sense of Funder Information Demands

Posted by:

Making Sense of Funder Information Demands

All lenders and investors will request significant information before deciding whether to loan money to you or invest in your business.

But many business owners believe that funders ask for too much information.

You need to understand that most business owners are not financial experts and, therefore, may not be familiar with customary requests from financing sources. Since they don’t “talk” finance, they may not comprehend why funders need so much data or why their business needs to provide more detailed financial information.

Do you understand why your funder is demanding to have specific financial information on your business?

Basic Funder Information Demands

There are three basic financial statements that both lenders and investors require from every business they want to review. These include the Income Statement, Balance Sheet and Cash Flow Statement.

There are specific reasons why these three statements are required by all financing sources. And you need to understand what funders are looking for and you need to be able to discuss this with your financing source.

Income Statement

The income statement identifies the revenue, expenses and profitability of the company.

In evaluating historical annual income statements, the reviewer can see the growth, stability or decline in operations of the business.

Financing sources want to see the income statement to identify how the company has performed over time with increasing revenue and managing its expenses.

You need to be able to explain what accounts for the growth—or decline—of your company’s revenues and profits.

Balance Sheet

The balance sheet identifies the assets, liabilities and equity of the company.

The assets may be cash, inventory, receivables owed to you by clients, equipment and real estate. The liabilities may be amounts owed by your company to your vendors, accrued expenses related to operating the business, and debt owed by your company to a lender.

The equity of the company is the amount that shareholders have invested into the company, plus or minus the cumulative net income of the company, minus the cumulative dividends paid to shareholders.

Financing sources want to see the balance sheet to identify the assets owned by the company, which, for example, may be used as collateral for a loan, as well as how much equity is in the business.

You need to remember that both lenders and investors are very knowledgeable about the industries in which they invest their money. Funders are very aware of the benchmarks in each industry, so you should be as well.

Cash Flow Statement

The cash flow statement identifies the cash flow in and out of the company. This differs from the income statement in that non-cash charges (such as depreciation and amortization) are added back to get a true look at changes in cash and cash balances.

Financing sources are interested to see how much cash your company has generated and how much cash it needs to operate. A lender, for example, will be very interested to see significant cash generation over time to gain comfort that the business could repay a loan if one were provided to the company, without straining the company.

An investor wants to make sure that the firm is investing in specific areas such as marketing, product development and research, and has enough cash to continue that investment to encourage growth.

Financing sources will be interested to see historical financial statements for three to five years (or fewer, if your business is less than three years old) as well as projected financial statements.

When they ask to see financial projections, they want to see the same three basic financial statements showing the performance of the business over the next three to five years.

Important Additions

In addition to the financials, it is helpful to provide a management discussion and analysis (MD&A) of the historical and projected results. Financing sources want to understand why the business performed in the way it did.

For example, if revenue increased 50 percent two years ago and then increased 20 percent the next year, why did growth slow the following year? They want to identify if it was a price or volume issue. Perhaps you were preparing to offer a new product and revenue is expected to return to 50 percent per year, but the lender will not know the story unless you provide it.

The MD&A should explain annual changes in revenue and expenses for each of the historical years and each of the projected years. In addition to being helpful to financing sources, it is beneficial to provide commentary on the projected financials to confirm you are comfortable with the growth you expect to achieve.

When a funding source asks for an Interim Statement, they want to know:

  • The business’ income and expenses since the last tax filing.
  • Any changes in the business’ financial situation that would prevent repayment of the debt.
Providing Financial Statements

Your CPA is the best source to help you create all the documentation you need to present effectively to a funding source. When developing your presentation for a potential financing source, focus on:

Revenue & Expense Growth

Provide the funding source with a comprehensive, historical look at your company’s revenue growth. This includes revenue information representing:

  • Each month for the last 12 months.

  • Each year for the last 3-5 years.

    – Or, if your company is less than 3 years old, for each year you have been in business

  • Each product and service you offer.

  • New products and services you have developed.

Financial projections are a very important part of your presentation to a funding source. They will determine whether you get a loan or investment into your business.

As you are projecting your future growth, always keep in mind that projections are just good guesses. To gain credibility with a funding source, your projections need to be as realistic as possible. The best approach is to use your historical performance as a guide.

If you are a startup, research the market and then base your projections on the historical performance of other companies within your market segment. Your trade and professional associations may also have information on your industry for your presentation.

Take a moderate tone when making projections. The most comprehensive way—and what most funding sources really appreciate—is providing projections on worst-case, base-case (which is also what you believe to be the most likely case), and best-case scenarios.

Cash Flow

This is the movement of money in and out of your business and is especially important to a lender.

In evaluating whether to provide a loan to your company, lenders want to identify specifically how your business will be able to generate enough cash flow to repay the loan. If lenders cannot see adequate cash flow in your business, your request for a loan will be denied.

Your cash in-flow is based on the sales of your products and services. This can also include borrowed funds, interest from investments, and income from asset sales.

Cash out-flow will include such expenses as wages, purchasing inventory and raw materials, buying equipment, operating costs, repaying loans and, of course, various taxes.

Cash repays loans. So when financing sources review your presentation, they know that repayment of their loan depends on your projected cash flows. They know that all businesses can be impacted by a changing economy, differences in consumer demand, pricing and other trends.

To present yourself as a sophisticated and knowledgeable business, make sure you outline worst-moderate-and best-case projections.


Financial professionals have their own language. In many cases, they speak in “ratios.” While you don’t have to become totally proficient, you need to understand the financial basics to converse effectively with funding sources.

Ratios are the financial short-hand that funding sources use to show trends and variations that can help manage the business. There are several usual and customary ratios that you should include as part of your presentation to your financing sources. Some you may be very familiar with, such as Profit Margin which shows how efficiently you are managing expenses:

     Profit Margin = Net Income

Another ratio is Return on Investment (ROI):

     ROI = Gain from Investment – Cost of Investment
                            Cost of Investment

A Current Ratio shows whether you are able to pay short-term debts:

     Current Ratio = Current Assets
                            Current Liabilities

Depending on the type of business you have, you may be required to provide different ratios. Review them with your CPA and determine which ratios would be necessary for your presentation.


Don’t get overwhelmed by the need that lenders and investors have for financial information and metrics. Your CPA is well versed in all these matters and will be working with you to establish all the documentation you need.

If you don’t have a CPA, then it is imperative that you get one. Select a CPA that will act as your financial advisor to help you understand how you use your financial statements to manage your business. (See How to Find Your Operational Sweet Spot to Make Your Business Profitable.)

A great CPA can be one of your best partners in growing your business.

DianeWekler-sml-for-postsDiane Weklar, the Authority on Accelerating Business Growth, is the CEO of the Weklar Business Institute. She is the author of the award winning book, Mastering the Money Maze: 10 Secrets to Winning Business Financing,which is also an Amazon #1 Best Seller. This book provides practical insight to build a successful business and the practical steps to raise capital to help your firm grow. She can be reached at

Sharing is caring!


[gravityform id="5" title="false" description="false"]
[gravityform id="5" title="false" description="false"]