Lenders request, and in most cases require, financial statements to accompany your request for credit. Financial statements show you have a detailed understanding of your business and its capacity to repay the loan. Wise business owners use financial statements in combination with production records to identify strengths and weaknesses in the operation. The three most common financial statements include a balance sheet, income statement and cash flow budget.
The balance sheet provides a snapshot of the business’ financial position at a specific point in time. It consists of three main parts: assets, liabilities, and owner equity. The balance sheet helps business operators evaluate important data and metrics, observe trends and plan for the future.
A business income statement, also called a profit and loss statement, is used to measure revenues, expenses, and net profits over a defined period of time, typically a year. Income statements can be used to determine income tax payments, evaluate potential for expansion and analyze loan repayment.
Cash Flow Budget
The cash flow budget summarizes cash inflows, outflows, balances, and loan activity for each month. It is useful in determining the need for operating lines of credit to cover cash flow deficits or the feasibility of making new investments.