use of funds in business plan example

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A solid business plan is one of the most important documents you’ll need to create for your company. This document provides a roadmap for your company’s future developments. However, no growth can occur without a sufficient amount of working capital. That’s why your business plan should include a source of funds section – it can remind you how to maintain the cash flow your company needs.

There’s another reason this part of your business plan matters. It can show certain lenders how much money you need beyond what the funding sources in your business plan can get you. That said, not all lenders will require you to share a business plan. For example, SmartBiz’s loan approval requirements don’t include business plans among the necessary paperwork. Either way, below are some source of funds examples in business plans.

What is a business plan?

A business plan is a document that guides your company’s growth. It helps define your business goals and provides a clear overview of how you’ll achieve them. You can also use it to plot out your marketing, operational, and sales approaches. Your business plan can be the foundation of a strategy to minimize risk and maximize growth.

Another reason why solid business plans are essential is that you’ll often need to provide them as you apply for business loans. Business plans provide an in-depth look at a company’s plan for profits, so lenders can more easily judge the borrower’s likelihood of repayment. Lenders are much more likely to finance borrowers whom they believe can pay back the loan amount in a reasonable timeframe.

8 source of funds examples

Having a source of funds – sometimes several sources of funding – is vital to growing your business . Common funding options include business loans, and sometimes, to qualify for them, you must show lenders your other funding sources. Understanding the below source of funds examples in business plans can help you better structure yours.

1. Personal savings

When you’re just getting your business off the ground, sometimes, the fastest way to fund it is directly from your current savings. However, entwining your personal savings into a company that could fail is a risky prospect – but it also shows commitment. Lenders and investors often respond well to a borrower who’s ready to go the distance with their ideas.

2. Money from friends and family

Money from family and friends, which you’ll also see called “love money,” is a viable source of funds in your business plan. However, just as it’s risky to get your own money wrapped up in a business, it’s dangerous with other people’s finances too. Plus, accepting money from a loved one can come with drawbacks. For starters, not everyone in your life has much to spare in the first place. Furthermore, if you borrow money from friends or family and you can’t repay it, the relationship could be damaged.

3. Federal and private grants

Occasionally, your business model can put you in line for federal grants. That said, rare is the business that qualifies for federal grants – technically, the government does not provide grants for small businesses growth. However, private companies ranging from FedEx to the NBA offer grants to small businesses that fit certain criteria. If there’s a chance your company could fit these criteria, you can include private grants as sources of funding in your business plan.

4. Share sales and dividends

Selling shares of your company to investors – as in, anyone who buys stocks – falls under a category of funding known as equity financing. This arrangement can be lucrative, which is a main reason why you see so many companies having initial public offerings (IPOs).

However, equity financing has a few drawbacks. For one, you’ll no longer have complete control over your company's future, as stockholders dilute your ownership. Additionally, you’ll have to account for dividends in your financial planning. You pay these sums to your shareholders every quarter.

5. Venture capital

If you need a large amount of cash, venture capitalists can be a viable option. Typically, though, venture capitalists are only interested in funding startup businesses in the tech sector with high growth potential.

Venture capital is a high-reward but high-risk funding source. It often requires you ceding a certain amount of ownership – and thus control – of your business. Furthermore, if your business fails, you may still need to repay any venture capitalists or firms that have funded your operations.

6. Angel investors

An angel investor is a wealthy private individual who invests in small businesses to help them get off the ground. They tend not to offer as much starting capital as a venture capitalist, but they can make up for the smaller amount with experience. Angel investors are often experts within a specific industry and put money back into it by investing in newer businesses within that sphere.

Although you’ll have to give an angel investor some control over your company, their experience and network can help your business grow. Additionally, the word “angel” in their name reflects that they typically don’t ask for their money back if your business fails. That makes them a safer bet than venture capitalists.

7. Business incubators

Unlike the previous funding options, a business incubator doesn’t offer direct monetary support. Instead, incubators help fledgling businesses thrive by allowing them into their workspace and letting them share resources as they get started. This type of funding is indirect – you’ll rarely get direct cash infusions, but you’ll get resources that would otherwise cost you money. It’s common in high-tech industries such as biotechnology, industrial technology, and multimedia.

8. Bank loans

Bank loans probably ring a bell for you. When a current or aspiring small business owner needs additional funds, these loans are often the first thing that comes to mind. They’re among the most in-demand funding options available given their large funding amounts, long-term repayment periods, and low interest rates . However, their high amounts introduce lender risk that can make them difficult to obtain. To minimize risk, most lenders impose strict qualification criteria that you might not make.

Why do you need to provide sources of funds in your business plan?

Providing a source of funds in your business plan paves a path toward obtaining and using your funding. Knowing where your money is coming from and what you’re spending can help with strategic financial planning. It also minimizes the chances of your business partners spending money the company doesn’t actually have.

In a lending context, your sources of funds may help you qualify for any loans you need in the future. Depending on the funding sources you’re using, lenders may view you as someone able to repay the debt financing they offer. For example, using personal savings shows your commitment to your business, meaning you’re likely a reliable borrower who won’t flake on a loan. You’ll show your commitment to your company and your business at the same time.

Parting thoughts

Reliable funding sources are essential to achieving your company’s objectives, and their presence in your business plan can help you obtain more funding. Namely, certain entities that offer small business loans require business plans as part of the borrower approval process. When your approval plan clearly shows why you need the loan money and how else you’re getting funding, lenders may trust you more.

However, certain lenders don’t require business plans. In fact, when you apply for SBA 7(a) loans , bank term loans, or custom financing through SmartBiz ® , you don't need a business plan. Check now to see if you pre-qualify * – the business funding you need might be closer than you think.

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How to Prepare a Sources and Uses of Funds Statement

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What Is a Sources and Uses of Funds Statement?

The sources and uses of fund statement is an accounting statement that summarizes the financial statement and financial plan . It shows the sources from which a business or a company obtains its cash and the uses to which this cash is put during a trading period.

Large companies and businesses include sources and uses of funds statement in their annual report . It is their way to show the lenders how much they need for a startup financial and how much collateral they will contribute. Creating sources and uses of fund statement is also one of the ways to strategize business financially.

The Sources and the Uses

Let us take a closer look at the sources and the uses of funds.

Sources of funds. The sources of funds is where all the money for funding is going to come from. For example, you may be providing furniture for your office, getting a loan to purchase equipment, or getting a line of credit for working capital.

Uses of funds.  The money needed for various purposes for business startup. This includes:

• The beginning quantities of supplies, equipment, and furniture.
• Purchase of building or land.
• Costs of deposits for rent

What Is the Statement of Sources and Application of Funds?

The statement example in word  of sources and application of funds shows the total sources of new funds that are generated between the balance sheet dates and the total uses of those funds in the same period. it is also made up of a list of the changes that occur in all of the Balance Sheet Items between any two balance sheet dates.

The statement of sources and application of funds will exactly tell where the company got their money from and detail how the money was spent. It also tells whether the management plan has made reasonable investment decisions.

Steps in Creating a Sources and Uses of Funds Statement

As we have already learned in this article, there are two sections of the statement example in excel for funds: the sources and the uses. Here are the steps in creating the sources and the uses in the fund statement.

• In the first section, which is the uses of funds, use the subtotals from your startup costs worksheets, such as the facilities, equipment and vehicles, supplies and advertising, and other startup costs. After that, total those numbers.
• Include an estimate of your working capital needs. The working capital needs are the amount of money you have to obtain in order for you to pay the bills while you are still establishing your business analysis .
• To determine the total use of funds, Add the total of startup funds and working capital needs.
• Equity in your company
• A savings account
• An IRA (Individual Retirement Account)
• The difference of the total of the uses of funds and the total collateral you are providing must be equal to the amount of financing needed.

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Top 5 Sources and Uses of Funds Templates with Samples and Examples

Deepali Karkera

CoreWeave, a company that provides AI cloud infrastructure, recently raised $1.1 billion in funding. Hyundai has also invested $475 million in Motional, a Boston-based startup that develops autonomous vehicles.

Raising capital allows businesses to continue operations, devote resources to product development, and grow and fund their market expansion.

Some entrepreneurs may seek funding from family and friends to launch their businesses. Startups seeking to validate their ideas can benefit from government grants. Then, there is the traditional method of obtaining loans from banks.

Other financing options include retained earnings, angel investors, venture capitalists, debt capital, and corporate investors.

We have pre-designed sources and uses of funds templates available, which you can use to present financial data to key stakeholders.

How do you plan on using the funds you aim to raise? How do you persuade firms to invest in your business? Here are five uses of funds templates that use donut charts, tables, and colors that can help you answer these questions while maintaining the aesthetic appeal of the slides.

5 Sources and Uses of Funds Templates

Transparently disclosing the source of business funds and how you utilize them can help build trust with partners and the public. In some countries, it is mandatory for businesses to disclose the source of funds. Our customizable templates can help you stay compliant.

Apart from sources, you can also help investors understand the application of funds. For example, the funds could be used for infrastructure development, market expansion, or corporate social responsibility activities.

Do you want to elaborately present the sources of funds for your business? If yes, here are our top 10 sources of finance templates that touch on topics like conventional and unconventional funding sources, debt financing and project cost sheets.

Here are five of our sources and uses of funds templates, which you can use to keep stakeholders apprised of your financial situation.

Template 1: Sources and Uses of Series C Funds PPT

The template is designed for late-stage startups who have been successful in raising capital from major financial institutions. Startups can use the template to publish the results of their Series C funding round. The sources and uses of funds are presented in the form of tables stacked on top of each other. The source of funds includes data like profit before tax, hedge funds, and banks. The uses section mentions channels such as market expansion and long-term investments. Download the template now.

Template 2: Sources and Uses of Debt Financing

Are you raising capital for your business through debt financing? If so, you can use this customizable template to showcase the source and application of funds. The data is presented in an easy-to-understand tabular format. Descriptive icons like particulars, amounts, and funds are used for columns and rows. In the last row, you can highlight the net increase/decrease in the working capital, which can help businesses prepare well for the future. Grab the template and organize your debt financing channels.

Template 3: Sources and Uses of Funds Venture Capitalists PPT

This is the template for you if you are an early-stage startup or an emerging company raising funds from venture capitalists or equity investors. You can present the sources and uses of funds in two separate tables. They are also colored differently for easy distinction and visual appeal. At the top of the slide is a banner that you can use to highlight your branding or popular products. Download the customizable PPT and systematically present financial data.

Template 4: Sources and Uses of Grant Funds

A grant is a funding amount awarded by governments, public corporations, or charitable foundations. It can be considered a gift, and businesses need not pay back the amount. The money can be used to boost business development or organize corporate social responsibility activities. This is one of our more creatively designed templates, with two sections for sources and applications. The template presents grant data using a soothing color palette and complementary font. Download the template and get the right balance between design and details.

Template 5: Sources and Uses of Private Equity Funds

Private equity firms can help companies streamline their operations by providing them with capital. These firms typically invest in private companies not listed on the stock exchange. If you are raising funds from such a firm, you can use this template to present how you plan on using the money. There are two tables available for sources and uses. The 'total amount' rows are highlighted with a dash of blue and yellow for easy comparison and visual appeal. Grab the template now.

Drive Business Growth by Raising Capital

Working capital is an indispensable part of a business, regardless of its size. Capital helps businesses keep their operations running, innovate, and enter new markets. The different sources of funds can include venture capitalists, grants, private equity funds, and corporate investors. You can use our pre-designed sources and uses of funds templates to present this data in an organized manner. All the templates are customizable, so you can adapt them to suit your business requirements.

Capital is the backbone of any business. If you are trying to raise funds for your business, here are our top 10 funding request templates . The premade slides can help capture investor attention while significantly reducing preparation time and effort.

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Building a Strong Business Plan with the Use of Funds Slide

A well-structured business plan outlines a business’s vision, mission, and strategies, providing a roadmap to success. However, one pitch deck slide that often stands out for investors and lenders alike is the Use of Funds slide.

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Let’s explore why a business plan is essential , what the Use of Funds slide entails, and how to make it an asset that propels your business forward.

The Role of a Business Plan

Before diving into the specifics of the Use of Funds slide, let’s take a moment to understand the broader role of a business plan. It’s not just a document; it’s the blueprint for your business’s future. A well-crafted business plan:

• Defines Your Vision : It lays out your business’s purpose, mission, and values. It clarifies what your company stands for and where it’s headed.
• Attracts Stakeholders : Investors, lenders, and partners often require a business plan before committing their resources. A solid plan can captivate their interest and support.
• Guides Decision-Making : It’s your compass for making informed decisions. From marketing strategies to financial projections, your plan ensures you stay on the right track.

Understanding the Use of Funds Slide

The Use of Funds slide offers a snapshot of how you intend to allocate the capital you seek . It’s not just about stating the sum; it’s detailing where every dollar will go.

What Is It?

The Use of Funds slide is a visual representation of your financial strategy. It succinctly outlines how much money you need, what you’ll use it for, and over what timeframe.

Why It Matters

This slide is a make-or-break element of your plan. Investors want to know that you will put their investment to good use—and this slide tells them precisely that.

The Use of Funds slide is typically in the early parts of the financial slides, right after your funding requirements. It sets the stage for the nitty-gritty financial details that follow.

Components of a Strong Use of Funds Slide

A compelling Use of Funds slide isn’t just about numbers but displaying clarity and precision. Here are the key components you should include:

• Funding Allocation : State clearly how much capital you’re seeking. Be specific. Investors appreciate a precise figure.
• Purpose of Funds : Detail what the money will be used for. Whether it’s product development, marketing, or hiring, be specific about your intentions.
• Timeline : Investors want to know when they can expect to see returns. Include a timeline indicating when the funds will be deployed and when results are anticipated.

Clarity is Key

Avoid vague or ambiguous language . Make it easy for anyone reading the slide to understand where the money is going.

Aligning the Slide with Business Goals

Your Use of Funds slide shouldn’t operate in isolation. It should seamlessly align with your broader business goals and strategies. Here’s the reason why alignment matters:

• Credibility : When your Use of Funds slide harmonizes with your business strategy, it instills confidence in investors. They see that you have a cohesive plan for success.
• Supports Strategy : Ensure that the allocation of funds supports your overarching business strategy. If you’re emphasizing growth, allocate funds accordingly.
• Transparency : Investors appreciate transparency. They want to see a logical connection between the capital you’re seeking and your business’s goals.

Addressing Risk and Contingency Planning

Investors are savvy individuals. They understand that risks are inherent in business. Thus, addressing risks in your Use of Funds slide demonstrates foresight and a willingness to adapt.

Risk Mitigation

Alongside the allocation of funds, consider including how you plan to mitigate risks . For example, set aside a portion of funds as a contingency for unforeseen challenges.

Contingency Plans

If your business faces a particular risk, such as supply chain disruptions, mention how you’ll navigate these hurdles using the allocated funds.

The Use of Funds slide is a pivotal element within your business plan, captivating investors and ensuring the alignment of financial strategies with broader business goals. By crafting a clear, precise, and well-thought-out slide, you set the stage for attracting support and achieving success in your entrepreneurial journey.

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The Sources & Uses of Funds Spreadsheet: What You Need to Know

by Diane Tarshis | Financials

If you’re not a numbers person, I recommend reading or listening to Financial Projections Explained (Even If You’re Not a Numbers Person) and The Difference Between P&L and Cash Flow Projections before reading this article.

• How much money do you really need?
• What will you be spending that money on?
• How, exactly, are you coming up with that number?

Even if you’re bootstrapping, you’re not off the hook.

Answering these questions helps to ensure that you have enough access to cash (also known as working capital or liquidity) to keep your business afloat until you become what I call “reliably profitable.” I say “reliably” because a single month or quarter isn’t enough time to guarantee that you’re on solid enough financial footing to be self-sustaining.

Where to start…

To answer these questions, you first need to build realistic financial projections using the standard spreadsheets I covered in Financial Projections Explained (Even If You’re Not a Numbers Person) . Specifically, you’re going to need the Sources & Uses of Funds.

• All the cash coming into your startup from loans, investments and grants (and from whom)
• How you plan to use that cash (by type or category)

The Sources & Uses of Funds will not only provide this information, but just as importantly, show that you’ve done your homework, which is a fantastic way to make sure you’re taken seriously. Gold star for you!

Why this spreadsheet is different from the others.

When you look closely at the 5 main spreadsheets startups use for their financial projections, you’ll see that the Sources & Uses of Funds is different from the all the others in one important aspect:

It’s the only spreadsheet that relies on information from other spreadsheets.

Specifically, you need to complete your Cash Flow Projections and Equipment List first. Then you can begin work on your Sources & Uses of Funds.

So let’s go over what you need to know to build this spreadsheet the right way, so you’ll have all your ducks in a row when you start asking for money.

First off, avoid this common mistake.

An unfortunate but common error many entrepreneurs make is including startup costs * in their profit and loss (P&L) and cash flow projections. Doing this is a problem because it distorts your financial picture.

The P&L relies on your estimated revenues and expenses to show your startup’s profitability, whereas cash flow projections rely on those same estimates to show your startup’s ability to pay its bills. Both are essential tools when it comes to setting your prices as well as budgeting. Including startup costs in these spreadsheets will throw your financial picture out of whack because they’re not part of your daily operations.

For example, money received from investors or other funding sources is not revenue. In fact, funding has nothing to do with measuring sales, which is what revenue is meant to show. And startup costs, such as building your website, buying a delivery van or hiring a consultant to write your business plan, have nothing to do with your daily operating expenses.

* When I refer to startup costs, I mean the one-time expenses you incur before you begin your normal daily operations.

Here’s what the Sources & Uses of Funds tells you:

Done right, a Sources & Uses of Funds will show you how much cash you’re going to need to:

• Launch your business.
• Cover your expenses until your startup is generating enough cash to cover its own expenses… or reach the next round of funding.
• Raise from investors, borrow from lenders or budget for yourself if you’re planning to bootstrap.

What goes in the “Sources” section.

In the Sources section you’re going to list everyone who is providing the startup funds that you need. Regardless of whether you’re planning to find outside investors, secure a loan, use your own money or some combination, this part of the spreadsheet has to show all the sources of funding for your business.

You’ll need to list each one on its own line, including the source’s name along with the amount they are investing or loaning to you.

Founder Contribution: Suzy Q.                         $xxx Founder Contribution: Andre M.                       xxx Investment from Tony Smith:                              xxx Investment from XYZ Ventures:                        xxx Total Sources:                                                           $xxx

When you’re completing this section, make sure not to leave out anything, including money coming from friends, family, co-founders or yourself, if you’re using your own money.

After each source is listed, you’ll total them up to determine the sum of all incoming funds. Then you’re ready to move on!

What goes in the “Uses” section.

The Uses section includes two different categories:

• Startup costs
• Working capital

1. Startup costs.

In the first category, you need to consider all of the expenses you’ll incur before you launch your business. This includes things like a website, furniture, equipment, legal fees, consultant fees, grand opening expenses and more.

Each category should be listed on its own line of the spreadsheet. For example, you’ll have one line for furniture, one for equipment, one for consultant fees and so on.

Reminder: If you need to purchase equipment for your startup — things like machinery, display cases, a delivery van, etc. — you’ll need to create a separate Equipment List spreadsheet where the individual items are listed in detail, along with delivery and installation fees, sales tax, etc. Then you put that total in the Uses section.

App Development                                                    $xxx Business Plan                                                                 xxx Equipment                                                                       xxx Legal                                                                                    xxx Grand Opening                                                             xxx Inventory/Supplies                                                    xxx Website                                                                            xxx

Cash Needs for 17 Months of Operations   xxx Cash Reserve for Contigencies                          xxx Total Uses:                                                                  $xxx

Now we’ll look at the next thing you have to account for in the Uses section…

2. Working capital.

This category refers to the amount of cash you’ll need to bridge the gap until your business is generating enough cash to fund itself and become self-sustaining.

This number will appear as its own line item labeled “Cash Needs for ___ Months of Operations.”

Of course, to figure out how many months it will take to become profitable, you’ll have to refer back to your Cash Flow Projections. That’s why you need to prepare them before tackling your Sources & Uses of Funds.

To estimate when your business will be “reliably profitable,” take a look at the bottom two lines of your Cash Flow Projections spreadsheet. They show the cumulative beginning and ending cash on hand each month.

Find the month when the negative numbers become consistently positive. However many months it is from when you start your business, that’s the number you’ll use to fill in the blank of “Cash Needs for ___ Months of Operations.”

Finally, I recommend adding an additional line labeled “ Cash Reserve for Contingencies . ” It’s always smart to have a small cushion to cover any surprises that crop up.

Two important points about the Sources & Uses of Funds:

1. the totals have to match..

In other words, Total Sources needs to equal Total Uses. This isn’t my rule, it’s an accounting rule.

If there’s a significant difference between Total Sources and Total Uses, then there’s something important missing in one of the sections. It’s important for you to find and fix any discrepancies.

It’s especially important to do this before showing your numbers to other people. If your Total Sources and Total Uses don’t match up, it’s a red flag to banks and potential investors that you don’t understand your financials.

If, on the other hand, your two totals are close but not exact, I tweak the Cash Reserves line item slightly — and I do mean slightly — to make the numbers match.

2. Double-check that your financial projections are realistic and credible.

You’ll know you’ve done things right when you’re confident that you can defend your assumptions if an investor or banker dives in and asks how/where/why you chose the numbers you did. Pro Tip: It’s not really about the numbers per se, it’s about the thinking behind the numbers that they’re testing you on.

Helpful reading and resources.

For more information on the financial spreadsheets mentioned in this article, take a look at my DIY Business Plan Kit . It goes into far greater detail on the five main spreadsheets you need for your business plan, and includes Excel templates with some formulas already built in.

Also take a look at The Difference Between Profit & Loss and Cash Flow Projections to get a better understanding of how each of those spreadsheets works. And if all of this numbers talk is new to you, be sure to take a look at Financial Vocabulary for People Who Hate Numbers .

Last but not least, if you’d like help putting together your financial projections — as well as learning how to use them so that you can take charge and feel comfortable changing things as you move forward — consider working with me one on one ( see more details here ).

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Sources And Uses of Funds: A Closer Look

Sources and Uses of Funds statements detail an entity’s capital utilization and acquisition. They highlight financial inflows and outlays to depict a company’s financing structure.

Understanding the Sources and Uses of Funds is crucial for stakeholders and potential investors as it provides insight into how a company allocates its capital, manages its financial resources, and plans for future growth. This financial tool breaks down the origins of funds, such as loans or investment capital, and explains their application towards expenses, asset purchases, or debt repayment.

A well-documented statement acts as a snapshot of fiscal responsibility and strategic planning, ensuring that every dollar spent or invested is accounted for and aligned with the company’s objectives. For businesses, maintaining transparency through this statement is key for building trust with investors and managing internal budgets effectively.

The Essence Of Financial Transactions

The Essence of Financial Transactions is profound in the business world. Money moves in and out of a company daily. These movements are vital for businesses to operate. They are like the blood flow in our bodies. Let’s delve into the key aspects of financial transactions.

Balancing The Books: The Twin Sides Of Every Financial Move

At the heart of each financial transaction lies a simple truth. Every move has a source and a use . Funds come from somewhere and they go somewhere. This can be a sale, a loan, or an investment. Every penny spent is for a purpose like buying goods, paying debts, or investing in growth.

Think of it as a balance scale. On one side, you have sources of funds . On the other, there are uses of funds . Every transaction tips the scale. But in the end, we aim to keep it balanced.

• Debits: They show where money is used. It might include expenses or asset purchases.
• Credits: They reflect where money comes from. It could be sales, loans, or investor money.

Why Tracking Sources And Uses Matters In Finance

Proper record-keeping helps businesses understand their financial health. It shows what fuels the company’s engine. It also reveals how effectively funds are used.

Let’s break down why tracking is essential :

• It helps in making smart decisions. Businesses can see what works and what doesn’t.
• It ensures accountability. Each dollar has a tracked purpose. This deters misuse.
• It aids planning. Companies can forecast and plan for the future with accurate data.

Good finance tracking helps in achieving goals. It also keeps stakeholders informed. Therefore, it’s one of the most crucial habits for success.

Decoding Sources Of Funds

Decoding Sources of Funds is crucial for businesses and investors alike. Understanding where money comes from can shape financial strategies.

Navigating The Terrain: Diverse Origins Of Capital

Capital flows from various streams into businesses. Knowledge of these options empowers savvy decision-making. Key sources include:

• Personal Savings: Seed money from an entrepreneur’s own pocket.
• Angel Investors: Wealthy individuals seeking new ventures.
• Venture Capitalists: Firms investing in early-stage companies.
• Loans : Borrowed funds from banks or financial institutions.
• Grants: Non-repayable funds from government or organizations.

Equity And Debt: The Primary Channels

Companies often resort to twin pillars of finance: equity and debt . Each has distinct traits.

Equity financing involves selling a company’s stock. Debt financing means borrowing money to be paid back later.

Diving Into Uses Of Funds

Diving into Uses of Funds gives us critical insight into how businesses allocate their financial resources. This aspect of financial management is pivotal for sustaining operations, driving growth, and achieving long-term strategic goals. Proper understanding of fund utilization ensures that every dollar contributes to the company’s success.

Allocating Capital: From Operations To Expansion

Businesses often start with fundamental operational needs. Allocation of capital spans a wide array of activities:

• Day-to-day expenses : These keep the business running smoothly.
• Emergency reserves : Funds set aside for unforeseen costs.
• Reinvestment : Profits put back into the company to fuel development.

As businesses grow, expansion costs come into the picture, further diversifying the use of available funds. These can include:

• New locations : Bricks and mortar or digital presence expansion.
• Product development : Innovations and improvements for competitive edge.
• Market research : To understand and capture customer demands.

Financial Decisions: Strategic Investments And Asset Purchases

Critical to growth are strategic investments which can transform a company’s trajectory. These decisions involve:

Asset purchases might involve one-time payments, but they provide long-term value. They include:

• Real estate for expanding operations or investment purposes.
• Machinery that enhances production efficiency.
• Technology systems that streamline company processes.

The Interplay In Business Operations

The Interplay in Business Operations hinges on the intricate balance between sources and uses of funds. A business must manage this delicate equilibrium to thrive. Whether it’s a start-up igniting its first operational fire or an established enterprise fueling ongoing activities, understanding the dynamics of funding is paramount.

Start-ups vs. Established Entities: Funding Dynamics

Start-ups Vs. Established Entities: Funding Dynamics

Start-ups and established businesses have contrasting approaches to sources and uses of funds. Each stage of business maturity introduces different financial challenges and opportunities.

• Start-ups often rely on external funding such as venture capital, angel investors, or crowdfunding.
• Established entities might tap into retained earnings or opt for institutional loans.

While start-ups strive for growth, established players focus on sustaining and expanding their market share, which dictates their funding strategies.

Managing Cash Flows For Sustained Operations

Managing cash flow is crucial for all businesses to ensure they can cover daily operations and plan for long-term goals. Effective management involves:

• Monitoring cash inflows and outflows.
• Forecasting future financial positions.
• Adjusting budgets to mitigate risks.

By aligning the inflow from sales with outflow for expenses, a business can maintain liquidity for continuous operation. This skill is essential in navigating the ebb and flow of market demands.

Analyzing Financial Statements

Firms use financial statements to show where money comes from and where it goes . The secrets of a company’s financial health hide in these documents. With just a bit of know-how, anyone can uncover the details of cash management and resource allocation.

Financial statements split into several parts . Each part serves a special purpose. They reveal the money trail. They also show the cash standing still.

Statement Of Cash Flows: Tracking The Money’s Journey

The Statement of Cash Flows acts as a map. It shows how cash travels through a business. This statement has three parts: operations, investing, and financing.

• Operations: Details money from daily business.
• Investing: Shows cash used for long-term investments.
• Financing : Tells about money from loans or given to owners.

By checking the Statement of Cash Flows, you trace every dollar’s path . It’s like a puzzle. Put the pieces together, and you see the full picture of a company’s cash health.

Unlocking Balance Sheet Insights: Where Funds Reside

The Balance Sheet is a snapshot. It captures a company’s financial state at one moment. This statement has assets, liabilities, and equity.

The Balance Sheet holds answers about a firm’s solvency and liquidity . Solvency is about meeting long-term debts. Liquidity is about handling short-term obligations. High assets and sensible liabilities suggest a firm’s good shape.

Peek into the Balance Sheet. Notice where the company’s money sits . Compare assets against liabilities to measure stability. Equity growth signals a robust company, catching the smart investor’s eye.

Strategic Considerations For Fund Allocation

In business, assigning funds smartly can lead to growth and safeguarding against loss. Firms examine where to spend money to push success. The goal is simple: Get the best outcome from money used. Let’s explore smart fund use strategies.

The Art Of Prioritizing Investments

Picking where to invest needs a keen eye on goals. Important projects get funds first. Each choice should align with the firm’s vision. The practice is both skillful and vital for steady progress.

• Long-term gains: Look for sustains growth
• Consistent revenue sources: Essential to stabilize cash flow
• Emerging opportunities: They may offer a competitive edge

Mitigating Risks: Diversifying The Use Of Funds

Not all eggs in one basket—a wise approach for fund use. Spread investments to reduce risk. Variety in fund allocation can protect if one area faces trouble. Think wide and varied for stability.

Regulatory Compliance And Reporting

Understanding sources and uses of funds also involves navigating the intricate web of financial regulations. Companies need to play by the rules set by authorities. Accurate reporting builds trust among investors, clients, and regulatory bodies. Here we dive into the relationship between funds management and regulatory compliance, emphasizing why following financial regulations matters and how transparent reporting reinforces stakeholder confidence.

Financial Regulations: Playing By The Rules

Financial regulations are the backbone of market integrity and investor protection. Businesses must understand and adhere to these regulations to operate smoothly. Failure to comply can result in hefty fines and damage to reputation. Companies should stay updated with changes in laws to ensure they remain on the right side of the law.

• Securities and Exchange Commission (SEC) : In the United States, the SEC oversees securities transactions, activities of financial professionals and mutual fund trading to prevent fraud and intentional deception.
• Financial Conduct Authority ( FCA ) : In the United Kingdom, the FCA regulates financial firms providing services to consumers and maintains the integrity of the UK’s financial markets.

These are only a few examples. Each country has its own set of regulations and financial watchdogs.

Transparency In Reporting: Building Trust With Stakeholders

Clear and truthful reporting is fundamental in business. It ensures that everyone from investors to the general public gets a real picture of a company’s financial health. Transparent reporting includes disclosing not just the good but also the risks and challenges faced by the business.

By embracing transparency, companies strengthen stakeholder relationships. They signal a commitment to accountability. This trust leads to more support and often, better access to capital.

Fund Sourcing And Use In Personal Finance

Understanding personal finance can often seem complex. Yet, it’s crucial to recognize that each individual operates as a unique micro-economy. By examining fund sourcing and use in personal finance , one can gain insights into balancing budgets and ensuring a healthy financial future. Whether it’s about paying bills, saving, or investing, knowing how to manage personal funds is key.

Individuals As Micro-economies: Balancing Personal Budgets

Just like countries, individuals must balance their financial ‘in’ and ‘out’. A balanced personal budget is the cornerstone of financial wellbeing. It involves tracking income sources such as wages, investments, or side hustles. Smart budgeting helps allocate funds efficiently across expenses like housing, groceries, and entertainment.

• Income Tracking: Noting down all money sources.
• Expense Monitoring: Keeping tabs on where funds flow.
• Optimal Allocation: Dividing income to cover all expense categories smartly.

Effective methods include using budgeting apps or maintaining a simple spreadsheet. These tools assist in avoiding debt and preparing for unexpected costs.

Investing In The Future: Personal Savings And Expenditures

Personal savings serve as a security net and investment for the future. While current expenditures are necessary, prioritizing savings can lead to greater financial freedom. Regular investment , even in small amounts, can yield significant returns over time due to compound interest.

Rational spending ensures that necessary expenses are met without compromising financial goals. By foregoing non-essential purchases , one can increase savings and bolster investment funds.

The Impact Of Technology On Financial Flows

The Impact of Technology on Financial Flows is a transformation that’s rapidly shaking up the business landscape. As digital platforms and tools continue to evolve, they dramatically reshape how companies manage their funds. Understanding these changes is crucial for anyone looking to stay ahead in today’s fast-paced financial environment.

Fintech Innovations: Changing The Face Of Funding

The advent of fintech has ushered in a new era for sourcing and using funds. Traditional banking processes are giving way to agile fintech solutions. Here are key ways fintech is altering the funding arena:

• Crowdfunding: Entrepreneurs now tap into a global pool of investors.
• Blockchain: Offers secure, transparent funding options outside conventional banking systems.
• Peer-to-Peer Lending: Connects borrowers directly with lenders.
• Robo-Advisors: Automated, algorithm-driven investment services provide new funding insights.

Real-time Tracking And Analytics: A New Frontier In Finance

Technology enables businesses to monitor fund movements with unprecedented precision. Consider the following advancements:

Case Studies: Successful Funds Management

Welcome to a deep dive into the world of corporate finance through insightful case studies in successful funds management. Understand the triumphs and pitfalls experienced by businesses in managing their financial resources. Learn from real-world scenarios to enhance your fund management strategies.

Learning From The Leaders: How Top Companies Manage Funds

Discover how industry giants build robust financial foundations. Explore strategic fund allocation, risk management, and investment decisions driving growth.

• Effective Cash Flow Control: Leading businesses maintain strict monitoring and adjust strategies swiftly.
• Strategic Investments: Smart choices in expansion and technology keep them ahead of the curve.
• Diversification: Top firms spread resources to minimize risks and secure revenue streams.

Case analysis reveals common threads among thriving companies:

Analyzing Failures: Lessons In Mismanaging Resources

Conversely, examine cases where poor funds management led to downfall. Uncover the mistakes to avoid and mitigate potential financial crises.

• Lack of Adaptability: Firms that fail to evolve with market demands face decline.
• Overexpansion: Companies that stretch resources too thin risk collapse.
• Inadequate Reserves: Insufficient savings for tough times lead to vulnerability.

Examples of missteps include:

• Blockbuster: Ignored digital streaming trend, leading to its demise.
• Enron: Engaged in fraudulent practices; resulted in bankruptcy and scandal.

Frequently Asked Questions

What are sources and uses of funds.

Sources of funds refer to where businesses obtain their money, such as loans, investments, or sales revenue. Uses of funds indicate how businesses spend their capital, including expenses like equipment purchases, paying debts, or expansion efforts.

How Do Companies Utilize Their Funds Effectively?

Effective utilization of funds involves strategic planning and budgeting. Companies prioritize spending on growth opportunities while maintaining sufficient liquidity for operational stability.

Why Is Understanding Sources And Uses Important?

Understanding the sources and uses of funds is crucial for financial planning, ensuring sufficient capital for business operations, and making informed investment decisions for future growth.

What Impacts A Company’s Sources Of Funds?

A company’s creditworthiness, market conditions, investor confidence, and profitability can significantly impact its ability to secure different sources of financing.

Understanding the flow of funds within an entity is crucial for both businesses and investors. Our exploration of sources and uses of funds has highlighted how these insights can inform financial strategies and decision-making processes. Effective financial management relies on balancing these aspects to ensure stability and growth.

Remember, a keen eye on your funds’ origins and destinations paves the way for sustained success. Let’s keep the financial wheels turning wisely.

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Sources and Uses of Funds Statement

A financial statement showing the inflows and outflows of a company's financial positions

Osman started his career as an investment banking analyst at Thomas Weisel Partners where he spent just over two years before moving into a growth equity investing role at  Scale Venture Partners , focused on technology. He's currently a VP at KCK Group, the private equity arm of a middle eastern family office. Osman has a generalist industry focus on lower middle market growth equity and buyout transactions.

Osman holds a Bachelor of Science in Computer Science from the University of Southern California and a Master of Business Administration with concentrations in Finance, Entrepreneurship, and Economics from the University of Chicago Booth School of Business.

Austin has been working with Ernst & Young for over four years, starting as a senior consultant before being promoted to a manager. At EY, he focuses on strategy, process and operations improvement, and business transformation consulting services focused on health provider, payer, and public health organizations. Austin specializes in the health industry but supports clients across multiple industries.

Austin has a Bachelor of Science in Engineering and a Masters of Business Administration in Strategy, Management and Organization, both from the University of Michigan.

What Is A Sources And Uses Of Funds Statement?

• The Flow Of Funds
• Funds From Operations Or Trading Profits
• Issuance Of Share Capital
• Raising Of Loans And Debentures
• Sale Of Fixed Assets Or Long-Term Investments

Non-Trading Receipts

• Decrease In Working Capital

A sources and uses of funds statement, otherwise known as a flow of funds statement, gives an updated look into a project, the allocated funds for that project, and how they are being spent. They can be for investing, financing, or even operating activities.

All of these can be found on any company's financial statements , understatement of cash flows, and are imperative to the success of a business. There are different sources to pay attention to when it comes to a statement of funds, and they are:

• Notice of changes in the financial position
• Cash flow statement
• Statement of funds.

These sources and uses of funds can be accessed at any time but are released annually. They help accountants, and other industry professionals see how much money is allocated at certain times or for specific projects.

It is essential to understand the different ways funds can flow and the statements documented to track the progress of each.

Key Takeaways

The Sources and Uses of Funds Statement provides a comprehensive view of fund allocation and spending. It's essential for understanding investment, financing, and operational activities.

Mastering fund flow isn't just about accounting; it's crucial for business strategy and loan credibility. It reflects financial health and attracts potential investors.

The statement draws data from financial position changes, cash flow, and fund allocation. This gives professionals valuable insights into fund utilization.

Funds stem from operations, share issuance, loans, asset sales, non-trading receipts, and reduced working capital. Balancing these sources is crucial for cash flow optimization.

Effective cash flow management ensures positive cash flow, liquidity, and stability, all vital for business success.

  The Flow of Funds

How a company presents its fund flow statements can indicate the business and whether they are reliable for loans or even a future pool of funds. 

Lending someone money requires a mutual trust that the money will get returned. If a company has a good flow of funds, it can be easier to delve out cash because it is tied up somewhere else. 

There are many sources of funds, some of which are better than others. However, the funds flow between business and customers is essential for the success and longevity of a business in a particular field. 

Here is a flow chart of how funds can flow within a business.

The different sources of funds can ultimately tell you a lot about the position of the money.

Along with the part of the money, the Top 6 Sources of Funds, non-related to the different sources of statements of funds, are:

• Funds from operations or trading profits 
• Issue of Share Capital
• Raising of loans and debentures
• Sale of fixed assets of long-term investments
• Non-trading receipts 
• Decrease in working capital 

We will dive into each one in its specific light and how they ultimately affect the flow of funds to and from different businesses.

Funds from Operations or Trading Profits

The profit one receives from operations within the business and trading at profits are some of the best ways to source funds. However, sales alone are the primary source of cash flow for businesses.

This is done simultaneously while increasing current assets such as cash or other outstanding bills. Along with support, the funds flow from businesses for their cost of goods sold , and expenses are just as necessary.

As a result, the total effect of business operations relative to their cash flow will be a source of funds if the same inflow from sales is more than the outflow for expenses and cost of goods sold. 

These are basic ideas, as you want to bring in more money than you are spending, hence the topic of profit.

It is imperative to remember that funds from operations do not account for a firm's profit and loss account because many operating and fund items are non-profitable. The reason is that they may have been debited or credited to profit and loss.

There are many examples of such items on the debit side of a profit and loss account. 

• Amortization of fictitious and intangible assets , such as goodwill, 
• Preliminary expenses  and discount on issue of shares and debentures written off;  
• Appropriation of Retained Earnings , such as Transfers to Reserves, etc., 
• Depreciation and depletion; Loss on sale of fixed assets; Payment of dividend, etc.

The non-fund items are those which may be expenses linked to operational activities. They do not affect the funds of the business. For example, funds do not move out of the company for depreciation charged to a profit and loss account. 

Items deemed as non-operating may result in the outflow of funds but are not related to the trading operations of the business.

An example of items deemed as non-operating is the payment of dividends when you get paid for holding the stock.

Issuance of Share Capital

If a business increases capital shares at any time during the year, it inevitably means that money has been raised. These shares of capital can either be preference or just equity.

Issuing shares is a source of funds because it means an in-flow of funds. So even if it is not fully paid, receiving calls from partly paid shares still represents a source of funds.  

These funds are still documented on the funds' flow statement. It is also important to remember that the sum proceeds from whatever net profit you are making from the shares of capital you were issued still amounts and counts as a source of funds.  

If shares are issued at a premium price, even the collected premium still counts as a source of funds.

The same goes for when these shares are issued at a discount; these shares will not be the actual numerical value of shares, but rather the deducting discount will amount to and is considered a source of an inflow of funds.

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Raising of Loans and Debentures

The issuing of debentures, or the raising of long-term unsecured loans through public or capital investments very similar to bonds , results in being a source of the inflowing of funds for a business.

Secured loans are backed by collateral, such as your home or car, and get taken away if you avoid paying on time. On the contrary, unsecured loans are not backed by anything except you, your credit reputation, and your creditworthiness .

To understand what a debenture is a little bit more, here is a simple investment cycle of them.

It truly does not matter if these loans are secured or unsecured, as they still result in being a source of funds.  

This source of funds from the actual proceeds of issuing debentures and raising capital includes the amount of the premium or not having the discount rate if there was one at all.

However, loans raised for purposes other than a current asset, such as the intent to purchase a building, will not count as a source of funds because, in that case, the accounts involved are only fixed or non-current. 

This is where selling them can also be considered a source of funds.

Sale of fixed assets or long-term investments

There are many fixed or non- current assets . Many of these are great investments, especially for the long term.

Some of these non-current or fixed assets are:

• Buildings and architecture 
• Plants and machinery 
• Household equipment and furniture. 

When any of these long-term investments are sold, it subsequently generates revenue and, as a result, becomes a source of funds.  

We mustn't forget that even if one fixed asset is exchanged for another, it does not mean there is now a source or inflow of funds because no other acquisitions are currently involved.

For an accountant lodging a journal entry, it would go into the balance sheet as:

• Debit cash for the amount which you received
• Debit all of the accumulated depreciation
• Debit the whole loss on the sale of the asset account
• Credit the asset for the fixed amount.

These ideas are essential. Every business has to have a team of accountants who can lodge these journal entries appropriately. 

As every business wants to increase its profits, they need to hang onto the appropriate assets to make that possible so that it won't lose money over time. 

Hammering home the idea that these assets do not depreciate is essential. This source of funds is meant to be one for long-term growth, not short-term.

Any receipts which are non-transferable such as a dividend received, a refund on your taxes, or a landlord receiving rent, all increase funds and are treated as a source of funds because this source of income is not included in the funds you received from operations.

Unlike most other ways of trading when your main goal is to sell what you have to make a profit, the concerns of non-trading entities always are accepting receipts and donations.  

These receipts are usually from the general public, corporate entities, and the government carrying out their operations. Some common examples of non-trading concerns are:  

• Athletic and sports clubs
• Colleges and Universities

The common theme between these places is that these institutions were established and originated not from making a profit but rather for some religious or charitable purpose.

There are many concerns associated with non-trading institutions, which are essential to note, such as:

• Non-Profit Motivation : Many non-trading organizations do not seek to earn profit. Instead, their main objectives are to serve their members or society, which can lead to concern over the common.
• Entity : The concept of entity is a common concern for non-trading entities, as they do not associate with or have any ownership or lack thereof. 
• Organizational Forms : As mentioned above, clubs, universities, hospitals, and others are all forms of organizations for non-trading entities. 
• Sources of Income : Non-trading concerns have limited sources of income. Such organizations depend on the donations given by the members and outsiders, such as tuition for a university. All these donations might be inadequate, which can be a concern if they underperform.  
• Budgeting & Use of Funds:   For organizations on a larger scale, even if they have or don't have non-trading concerns, always prepare an annual budget. Likewise, the use of funds from non-trading entities should be strictly for the benefit of the consumers. As mentioned before, if the sources of funds are inadequate, it might become challenging to suffice the individual needs.

Decrease in Working Capital

Suppose the working capital decreases from period to period, and the current period is less than the previous period. In that case, it means that funds have been released from working capital , which constitutes a source of funds.

When less money is spent to pay your workers, more money is spent on the company. 

In other words, if a company's WCR or Working Capital Ratio falls below one, it has a negative cash flow . Therefore, a WCR below one is not good and means its current assets are less in value than its liabilities.  

The company cannot pay its debts with its current working capital. When something like this happens, a company will have difficulty paying its creditors on time.

As previously mentioned, decreasing the working capital increases cash flow and is a viable source of funds. 

It is wise for businesses to do this, as ideally, they would always want a source of income to tap into in the event you need quick cash for operational expenses.

In summary, there are many uses and sources of funds. When it comes to the statement of cash flows , every company is doing its best to ensure that its cash flows are most liquid and with many revenue streams from them. 

The companies doing the best with the most profit usually use multiple, if not all, six or more sources of funds to increase their own.

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Researched and authored by Daniel Bartels  |  LinkedIn  

Reviewed and edited by Parul Gupta   |  LinkedIn

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Sources and Uses of Funds

Step-by-Step Guide to Understanding the Sources and Uses of Funds in LBOs

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What are Sources and Uses?

The Sources and Uses of Funds is a table summarizing the total amount of funding required to complete an M&A transaction, such as a leveraged buyout (LBO).

Table of Contents

How to Calculate Sources and Uses of Funds

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Under the specific context of a leveraged buyout ( LBO ), the sources and uses of funds table lists the total cost of acquiring the target in a hypothetical transaction structure.

• Uses  → The “Uses” side calculates the total amount of capital required to make the acquisition (i.e. the purchase price and transaction fees).
• Sources  → The “Sources” side details how exactly the deal is going to be funded, including the required amount of debt and equity financing.

One of the main purposes of a LBO model is to evaluate how much an initial equity investment by a sponsor has grown, therefore we must evaluate the necessary initial equity contribution from the sponsor.

The proposed capital structure is among the most important return drivers in a LBO, and the investor usually has the role of “plugging” (i.e. with equity) the remaining gap between the sources and uses for the transaction to proceed and close.

Just like how the assets side must be equal to the liabilities and equity side on the balance sheet , the “sources” side (i.e. the total funding) must be equal to the “uses” side (i.e. the total amount being spent).

From the perspective of the buyer in a LBO – most often financial sponsors (i.e., private equity firms) – one of the purposes of the sources & uses table is to derive the amount of equity that must be contributed towards the deal.

All else being equal, the less equity contributed by the PE firm, the higher the returns to the fund (and vice versa).

The returns to the investor are a direct function of the amount of equity required. Hence, the required equity contribution is among one of the most important considerations when deciding whether to proceed or pass on an investment opportunity.

Financial sponsors are incentivized to minimize the amount of cash equity required by limiting the purchase price and utilizing as much debt as possible to fund the deal – all while not placing an unmanageable level of risk onto the target company.

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To begin, we recommended starting on the “Uses” side before completing the “Sources” side, as intuitively, you’d need to quantify how much something costs before thinking about how you’ll come up with the funds to pay for it in the first place.

The main cash outlay for all LBOs is going to be the purchase price (i.e., the total cost of acquiring the company). Here, the first step is to figure out the entry multiple and the appropriate financial metric.

For the vast majority of deals, EBITDA tends to be the metric that is used to determine the bid (purchase price), and this metric will either be on a last twelve months (LTM) or next twelve months (NTM) basis. By multiplying the entry multiple by the relevant financial metric, the purchase price can be calculated.

Besides the purchase price, the uses section also consists of the following two fees categories:

• Transaction Fees  → Costs associated with M&A advisory and legal expenses – with such fees typically estimated by multiplying the purchase enterprise value by a transaction fee percentage assumption (i.e. 2%) until more data is available to adjust accordingly
• Financing Fees → Oftentimes called debt issuance costs, these are the payments to the 3rd parties involved in arranging the debt financing (i.e. administrative fees as charged by the lender, lender legal costs)

Transaction fees are expensed immediately upon transaction close whereas financing fees are capitalized on the balance sheet and amortized over the maturity of the debt despite the payments occurring upfront.

The “Cash to B/S” line item refers to the estimated amount of cash required to be on the balance sheet of the company upon the date of transaction close. The minimum cash balance must take into account the cash required by the acquired company to continue operating day-to-day without needing any external financing to fund its working capital requirements.

On the other side of the table, we have the sources of capital, which represent where the funding for the transaction comes from.

The amount of debt used will normally be calculated as a multiple of EBITDA, while the amount of equity contributed by the private equity investor will be the remaining amount required to close the gap for both sides to balance.

The total leverage multiple will depend on the target company’s fundamentals such as the industry it operates within, competitive landscape, and historical trends (e.g., cyclicality , seasonality).

When determining how much debt capacity a company has, investor judgment is required to gauge the amount of debt the company could handle – in addition to preliminary discussions with potential lenders, with whom there are typically pre-existing relationships and/or past experiences working together with the investor.

Other nuances such as management rollover are also going to show up in this section. In short, management rollover is when the prior management team uses their equity (i.e., their stake of the pre-LBO company and exit proceeds from the sale) to help fund the transaction.

Management rollover is usually perceived as a positive sign because it shows that management believes in the company’s ability to implement its growth strategy and its future trajectory.

To calculate the rollover amount, the total buyout equity value and the total pro forma ownership % that will be rolled over must be determined.

In absence of sufficient data, the rollover amount can be roughly approximated by multiplying the rollover % assumption by the total equity required.

We’ll now move to a modeling exercise, which you can access by filling out the form below.

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In the first step, we’ll calculate the purchase price by multiplying the LTM EBITDA by the entry multiple assumption, which in this case comes out to $250mm ($25mm LTM EBITDA × 10.0x Entry Multiple).

• LTM EBITDA = $25 million
• Entry Multiple = 10.0x
• Total Enterprise Value (TEV) = $25 million × 10.0x = $250 million

Here, we’ll use the total enterprise value (TEV) because we’re assuming the transaction is done on a cash-free, debt-free ( CFDF ) basis.

If a deal is structured as CFDF, the purchase price is the enterprise value to the buyer.

From the opposite end of the table, CFDF from the seller’s perspective means the seller gets to retain the excess cash on the balance sheet (excluding the cash required to continue operating), but in return, must pay off any outstanding debt liabilities using the proceeds from the sale.

Next, we can calculate the transaction fees, where for illustrative purposes – we’ll assume the transaction fees related to advisory fees paid to investment banks, consultants and lawyers is equal to 2.0% of the total enterprise value.

By multiplying $250mm by the 2.0% transaction fees assumption, the transaction fees come out to approximately $5mm.

• Transaction Fees % TEV = 2.0%
• Transaction Fees = 2.0% × $250 million = $5 million

On a similar note, the financing fees can be calculated by adding up the total initial debt raised and multiplying by the 3.5% financing fee assumption.

• Financing Fees % Total Debt = 2.0%

For modeling on the job, the financing fees are calculated individually for each tranche, but for this exercise, we’re using simplified assumptions and just using the total debt. Therefore the sum of the debt ($175.0m) is multiplied by the 3.5% financing fees assumption for us to get $6.1m for the financing fees.

• Financing Fees = 3.5% × $175 million = $6.1 million

To wrap up the uses section, the final line item is the “Cash to B/S”, which directly links to the hardcoded input of $5.0m.

• Cash to B/S = $5 million

Moving onto the other side, the “sources” will list where the funding for the transaction comes from.

The predominant source of funds will be in the form of debt capital .

Typically, a private equity firm attempts to raise as much senior debt (i.e., from bank lenders) before raising any other types of debt that tend to be costlier.

The relevant assumptions here are the total leverage multiple and senior leverage multiple.

In our example scenario, the total leverage ratio will be 7.0x – meaning, the total debt raised will be assumed to be seven “turns” of EBITDA.

Since the total leverage ratio is 7.0x while the senior leverage is 4.0x, the debt allocatable to subordinated debt is going to be 3.0x.

• Senior Debt = $25 million × 4.0x = $100 million
• Sub Debt = $25.0m × 3.0x = $75 million

Now that we have the debt portion filled out, we can now calculate the equity contributions.

The two providers are going to be the existing management team (rollover equity) and the private equity firm (sponsor equity).

The total required equity contribution – i.e. the “shortfall” in capital – can be calculated by deducting the total debt from the total uses.

• Total Equity Requirement = $266.1 million – $175 million = $91.1 million

Then, the management rollover can be calculated by multiplying the rollover assumption (pro forma ownership) by the required equity contribution.

• Management Rollover = 10.0% × $91.1 million = $9.1 million

For the final step, we must calculate the sponsor equity (i.e., the size of the equity check from the PE firm) now that we have the values of the total debt raised and the management rollover.

• Sponsor Equity Contribution = $266.1 million – $184.1 million = $82 million

Note: Alternatively, we could’ve just multiplied the total required equity ($91.1mm) by the implied ownership in the post-LBO company (90.0%).

We’ve now completed filling out the sources and uses of funds table and can wrap up by making sure both sides are equal to each other.

Because our total sources cell links directly to the total uses, it’ll be more practical for our formula to sum up all of the line items for each side as opposed to subtracting the bottom cell from each side.

After doing so, we get zero as the output for our check, which confirms that both sides are equal in our model.

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How to Manage Business Loans After You Receive Funding

Posted june 9, 2021 by diane gilleland.

So you landed some funding for your business. You finished writing a solid business plan and used it to apply for a small business loan, or perhaps you made a successful pitch to investors . Either way, congratulations!

Now comes, possibly the more difficult part of receiving funding, managing it. 

The importance of managing your business finances

Consider this: When you wrote your original business plan, there were things you didn’t know. It’s true for every entrepreneur . No matter how much expertise you have in your field, there are always aspects of running a business that you won’t understand in advance.

This is completely fine because you’ll learn as you go. But that learning needs to be captured and acted on quickly, so your company can stay solvent. And this is where doing more use of funds reporting can really help you—not from a planning standpoint, but from a management standpoint.

The more you know about how your business is performing, the more you review and revise expectations, the better prepared you’ll be to take strategic action. 

4 steps to manage small business finances and strategically use your funds

We’ll dive into specific funding scenarios later on in this article, but for now, here are the 4-steps you should take to better manage the cash you received.

1. Compare your forecasts to actual performance

Similar to how you don’t have all the answers regarding how you’ll actually spend funding before launching your business, your other projections likely aren’t perfect. Forecasting isn’t about seeing into the future, but making educated guesses regarding financial performance, market factors, and customer interest. And when you’re a virtually new business, you’re typically basing these assumptions off competitors or industry benchmarks, not previous sales or cash flow data.

So, rather than working off of outdated assumptions, the best thing you can do is compare your forecast to how your company actually performed . Doing this on a monthly basis helps you quickly identify where real-world sales and costs deviated from your projections. 

With LivePlan’s Live Forecast™ feature , you can make these adjustments with a single click and start your analysis directly within your Profit and Loss Statement. This allows you to spend less time updating your forecasts, and more time exploring what changes you should be making based on actual results.

2. Adjust your forecast

The other piece of comparing your forecasts to actual performance is revising your forecasts with actual sales data. We call this adjust to actuals, and doing this practice regularly ensures that your upcoming projections are always more accurate than the last. This ensures that you won’t be surprised by dips in sales, a lack of cash, or not having enough supply to satisfy demand.

3. Review your cash runway

Part of revising forecasts based on actual performance is looking at your cash burn rate and understanding your cash runway. These metrics tell you how quickly you are using up your funding and how long you have left until it potentially runs out. You’ll want to look at your projected cash flow statement to fully understand how solvent your business is in the coming months.

4. Make a plan and set milestones to bridge that money gap

Keep in mind that, especially for startups, you’ll probably be looking at a hefty burn rate and negative cash flow in the first few months. That’s perfectly ok, but you want to be sure you have milestones in place for when you need to see your cash intake flip to positive. Otherwise, you’ll keep on burning through cash thinking it’s perfectly fine until it’s too late.

This is when you should revisit your overall business plan once again, and revise or adjust any initial milestones you have. Just like forecasts benefit from adjusting to actual results, your overall strategic plan does as well. You’ll want to consistently revisit elements of your plan over time and keep them up to date. That way it can be used as a management tool rather than just a static plan that helped you get funding.

Tips for managing your small business finances

Having a system in place to manage your finances is an excellent first step. Putting it into action can be a bit difficult at first, so here are some additional tips to help make it a consistent process.

Start with your business plan

When you built your business plan , you likely included a section that explained how you plan to use the money you requested from lenders or investors.

This probably looked like a report on “use of funds” (or “use of proceeds,” as it’s sometimes called). It’s a standard part of writing a business plan to get funding. A use of funds report is a simple statement of why you need the funding and how it will help your business.

Since there are so many ways to use funding (purchasing equipment or other assets, adding staff, expanding marketing, and so on), a use of funds report can take the form that best meets your needs. It might be a spreadsheet, a forecast, or simply a few paragraphs of text.

And now that you have that cash in hand, it’s tempting to think that your business plan has done its job, and now all you have to do is use the money. But many entrepreneurs fail because of this exact belief. They haven’t quite thought through all the ways their original plan will probably change over time, or how to manage their funding while they navigate these changes.

Revisit and revise your forecasts and strategy

Peter Gregory, chairman, and CEO of Green Energy Corp currently uses LivePlan to do strategic planning, use of funds management, and reporting. He is a vocal advocate of doing the process we just walked through early and often.

“If you spend the last 10 minutes of every day looking at your actuals and updating your forecast , then you can get your monthly reporting done in as little as 10 minutes,” says Gregory. “If you wait three months to check in with your numbers, then it’ll take more like four hours to build your report. If you wait a year to look at your numbers, you’ll spend three months coming up with a report.”

“It’s a little like cleaning the shower —if you do it often, it’s no big deal. Wait a year to do it, and you’re going to have to hire a contractor to come rip out your shower.”

Prepare for positive and negative outcomes

As Peter Gregory says, “Keep in mind that good news, as well as bad, can affect your cash flow.” A large, unplanned expense can cause you to run short of cash down the road. But a large, unplanned revenue event creates an opportunity to invest in growth. Either way, the sooner you know what’s happening, the more effectively you can react. By staying in touch with your forecast in this way, you’ll be much better able to see your future.

The cash flow statement, then, becomes a kind of crystal ball. If your forecast is up to date, then you’ll be able to see, on the bottom line, exactly when your cash will dip into the negative:

These are the months when you’ll plan to use your line of credit, and now you can see the amount you’ll be using. With this visibility, you can plan your spending effectively. Not only that, you’ll be able to see what funding you might need a year from now, and that gives you time to find it.

The worst moment to discover that you’re running out of cash is the moment when you’re actually running out of cash.

Stay on top of anything associated with your funding

Aside from the internal management of your funding, you’ll need to be aware of and effectively track some external factors as well. These may be directly tied to your funding, or are elements that can affect your business due to bringing on debt. Here are a few additional things to consider:

Keep track of your credit

Depending on the type of funding that you acquire, it can have an impact on your business credit score . A loan or line of credit specifically, will either add a new amount of debt to your credit report or increase the amount of available credit you have available. Taking on debt is a common part of business, but you want to be sure that when you do, you’re keeping track of your credit score and doing everything you can to improve it.

In general, you want to be aware of the following:

• Your payment history and overall repayment timeline
• The amount borrowed compared to the amount of credit you have available
• How long your credit has been on file
• The number of credit inquiries you have outstanding
• The types of credit and debt you have

In short, you want to make sure you’re making payments on time, lowering your overall debt to healthy levels, and have enough available credit to leverage in a crisis. Doing so will not only improve your credit score but make it easier for you to negotiate future loans and funding with favorable terms.

Leverage available cash

You’ve likely acquired funding to grow your business. As you begin to do so, you may find that you have more available cash than you initially forecasted. In this situation, it can be tempting to immediately go outside of how you initially scoped out your use of funds. Instead, it may be wise to use that extra cash to pay off higher debt or loans that you currently have.

Now, you don’t want to make this decision blindly. Thankfully, by leveraging this process and consistently reviewing your position, you should already have been making necessary adjustments. If you really have excess cash, having this prepared can make it far easier to determine where it could be reallocated, and how much can simply go toward paying off your loans.

Avoid new debt

As you manage the funding you’ve acquired, it’s important that you avoid bringing on additional debt if possible. You want to be sure that you’re able to effectively turn the debt you have into profit. So, first and foremost you want to be sure you’re able to make payments on time.

If you’re struggling to do so or find that the funding is not leading to growth like you initially expected, it’s time to identify some cost-cutting strategies. If you bring on more funding, loans, or any other type of debt in this situation, it will simply stack on additional risks that you may not be able to handle.

Stay in touch with your lender

Once you receive any form of funding, you’ll want to remain in touch with your lender. This ensures that you are actively addressing any questions, concerns, or potential changes that you or the lender have in mind. This may include things like:

• An extension or adjustment of the financing terms
• Adjustments to your repayment plan
• Interest rate adjustments
• Delay of payment

More than likely, you’ll also need to report on the way you use the funds in some way. Let’s dive into how to create a use of funds report. 

How to report your use of funding

If you built your business plan in LivePlan, then you’re halfway to your use of funds report already. You can easily update your forecast, and see a visual comparison between your forecast and actual performance in the Dashboard tab . You can even generate reports for your investors or management team at any time.

You’ll need to do this reporting no matter what kind of funding you’ve taken on—a loan, line of credit, or angel investment. Let’s look at the specifics of the use of funds reporting for all three kinds of funding. 

Do keep in mind that the reporting we will be walking through is based on how you do it in LivePlan. But the processes and methodology still apply even if you don’t currently use this planning tool.

Use of funds reporting if you’ve received a loan

When a bank loans you money, you aren’t required to formally report back to them on how you’ve used it. But you’ll want to maintain a personal record of what expenditures you’ve made with the funds, and how soon your funds might run out.

If you’re using accounting software like QuickBooks or Xero , this record will happen as part of your accounting, but if you are not yet using accounting software, you’ll want to keep an accurate record of your spending.

If you took on a loan of a specific amount, earmarked for a specific set of purchases, obviously that’s a simple picture. The money comes in, and you spend it on what your business plan said you were going to spend it on. And then you make sure that these expenditures are represented in your forecast.

The LivePlan Schedule tab can be very helpful in planning this kind of spending. Major business expenditures, such as buying equipment, often have important deadlines tied to them. It’s also possible that the loan you’ve received has deadlines attached to it as well. You can create milestones with due dates in LivePlan for these deadlines, which helps you and your team stay on track.

Use of funds reporting if you’ve received a line of credit

Another common type of lending small businesses use is a line of credit —a revolving loan that you can draw on and pay back as needed. When you’re managing a line of credit, LivePlan can not only help you track your use of funds, but it also helps you predict exactly when you’ll need to use that line of credit to bridge future gaps in your cash flow.

It all begins with your business plan forecast . When you take on a line of credit, you’ll first enter it in your forecast. Then you’ll make monthly predictions about your spending, entering them as dollar values in each month.

As the months’ progress, check in on these values and make sure they represent your actual spending picture. Doing these regular checks will keep your cash flow forecast up to date, giving you a more accurate picture of what your cash will look like in upcoming months. A good entrepreneur regularly updates her forecast, so it reflects any unexpected expenses (or earnings) month to month.

When you were pitching to investors , it’s likely you showed them your early use of funds report, so they could understand how you were planning to spend the money. Now that you have an investor, you’ll need to submit a use of funds report to them regularly.

The frequency and level of detail in your reports will usually be dictated by the investment contract you’ve signed, but it’s good to plan on reporting to your investors monthly. (Or if you like, you can always send your investors an invitation to your LivePlan account , so they can check on the data whenever they want to.)

The process for preparing these reports is the same as the process we recommend above for managing a loan or line of credit. You’ll regularly:

• Check your forecast against your actual performance
• Update the forecast
• Look for future cash flow problems, and make a plan to solve them

The only difference is, in this case, you’ll need to make a presentation of your findings to the investor. Most investors will want to see a set of projected financial statements— profit and loss , balance sheet , and cash flow . You can print these from the Forecast tab in LivePlan.

Investors want to see how you react to the unexpected

Your investor will also want to see how you’re reacting to the unexpected events that pop up as your company operates.

“Investors want to know how their money is being used now, and how it will be used it in the future,” says Gregory. “That future picture can shift over time, so it’s important to be able to explain what that means to the investor. Investors are used to seeing companies change. They just want to know that you’re on top of it, and what the next 12 months to three years look like. That way they can either plan to invest more or not lose more.”

Not only that, an entrepreneur who keeps up on her forecast has more value for investors. “An investor would much rather see your forecast evolve into a target you can hit,” says Gregory. “It doesn’t help anyone if you stick to your original forecast goals and don’t meet them. Investors want to know that you can use this month’s numbers to plan a realistic future. That gives them more confidence, so they’re more likely to stay with you.”

Funding is cyclical

Many new entrepreneurs think that their initial funding is all they’ll need and that the business will be funding itself by the time that borrowed or invested cash is spent.

In reality, however, a business will likely need to seek funding more than once in its lifetime. According to a 2017 Federal Reserve survey of small businesses, over 60 percent needed additional funding to either grow or resolve business challenges.

There could be a temporary dip in your market or an unforeseen pandemic , and you’ll need bridge cash. Or there may be times when you’re ready to grow the company in a new direction, and you’ll need an infusion of cash to ramp up. 

This is why good use of funds reporting is so important. The more you can show that you’ve used your funding well to make a positive impact on your company, the more attractive your business will look to lenders and investors in the future.

Editors’ note: This article was originally published in 2019 and updated for 2021.

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August 26, 2020

Sources and Uses of Funds Statement

by Michael Langemeier

This article is one of a series of financial management articles that examine financial statements and financial analysis.  In this article, a sources and uses of funds statement will be illustrated and described.  A sources and uses of funds statement, often referred to as a flow of funds report, provides a mechanism for reporting how a farm’s performance during an accounting period influenced and was influenced by major funding activities.  This report also reconciles information in the income statement, the balance sheet, and the cash flow statement.

Sources of funds include cash farm receipts, capital asset sales, increases in liabilities, outside equity capital infused into the business, and net non-farm cash income.  The increase in total liabilities is derived from the beginning and ending balance sheets.  It is particularly important to track the change in total liabilities from the beginning to the end of the year.  If a farm borrows more money than its reduction in short-term and long-term debt (i.e., principal payments), we have a source of funds.  Conversely, if a farm pays back more debt than it borrows, we have a use of funds.

Uses of funds include farm cash operating expenses, capital asset purchases, decreases in total liabilities, equity capital withdrawals, family living withdrawals, and income and self-employment taxes.  A farm that is expanding will typically have a larger amount of capital purchases than capital sales so capital assets are generally a use of funds rather than a source of funds.  A farm that is expanding would probably also have an increase in total liabilities rather than a decrease in total liabilities.  In contrast, a farm that is downsizing, perhaps in anticipation of future retirement, would typically have relatively higher asset sales compared to asset purchases, and may exhibit a decrease in total liabilities as loans are paid back.

The five primary categories of a sources and uses of funds statement are beginning cash balances, cash flows from operating activities, cash flows from investing activities, cash flows from financing activities, and ending cash balances.  If all cash is accounted for unlocated funds will be zero.  If unlocated funds are not zero (either positive or negative), all cash is not accounted for.  This is often the case if family living withdrawals, and income and self-employment taxes are not included in the statement.

Table 1. Sources and Uses of Funds Statement for White County Farms, 2019.

Table 1 presents a sources and uses of funds statement for a case farm in west central Indiana for 2019.  The net cash provided by operating activities; which subtracts cash farm expenses, family living withdrawals, and taxes from cash farm receipts; was $319,965.  Net asset purchases for this farm were $184,703 (capital asset purchases minus capital asset sales) so the net cash provided by investing activities was -$184,703.  On most farms, the net cash provided by investing activities will be negative, and thus will need to be covered by cash from operating activities or financing activities, or by drawing down cash balances.  The net cash provided by financing activities was $50,829, which is indicative of a situation where a farm increases total liabilities (loan receipts are larger than loan payments) to help pay for capital asset purchases.  For this case farm, loan receipts were $97,777 and principal payments were $46,948.  The net cash provided by operating and financing activities was larger than the net cash provided by investing activities for this farm resulting in an increase in the ending cash balance.

Unlocated funds are zero in table 1 indicating that all cash is accounted for.  If this balance is not zero, it is important to check the accuracy of the balance sheet, the income statement, and the cash flow statement.  It is particular important to check the accuracy of capital flows in and out of the business and family living withdrawals.

This newsletter article illustrated and described a sources and uses of fund statement.  Other articles in this series discuss the balance sheet, the income statement, the statement of owner’s equity, and benchmarking.

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Financial Management – Statements & Analysis

Related resources, crop basis levels finish weaker than recent years.

Looking back on last year, the importance of understanding how basis affects your marketing plan is evident. Basis levels for corn and soybeans peaked at different times during the 2023-2024 marketing year. Preparing for the Fall 2024 harvest, basis levels continue to be below the three-year trend. To check your up-to-date local basis levels throughout harvest this fall, visit Purdue Center for Commercial Agriculture Crop Basis Tool.

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Explore key trends in corn plant populations across Iowa, Illinois, and Indiana, revealing a steady 1 percent annual increase from 1996 to 2023. With Illinois leading the charge, corn populations rose significantly from 24,200 to 32,400 plants per acre, influencing both seed costs and farm budgets. Discover how understanding the interplay between seed prices and plant population can enhance your farm’s productivity and budgeting strategies.

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How to Create a Winning 'Use of Funds' Slide for Your Pitch Deck

There might not be any slide more important than the "use of funds" slide in your pitch deck. This crucial slide does more than just outline where the money will go; it paints a picture of how each dollar will strategically drive your startup's growth and success.

For potential investors, it’s a window into your planning and financial acumen, showcasing your understanding of resource allocation and your strategic vision for the future.

Creating a winning use of funds slide demands a balance of clarity, detail and foresight, ensuring that investors can see the direct correlation between their funding and your startup’s trajectory.

What Is a Use of Funds Slide?

A use of funds slide details how the capital raised will be utilized. It’s a clear, concise breakdown of the different areas where the investment will be allocated, such as product development, marketing, hiring, operations or research and development.

This slide is more than just a financial plan. It’s a strategic tool that communicates to potential investors how their funds will directly contribute to the growth and scaling of the business.

Why Are Use of Funds Slides Important to Investors?

For investors, the use of funds slide is a critical factor in their decision-making process. It demonstrates the startup’s strategic planning skills and its understanding of what it takes to grow the business.

Investors use this slide to gauge:

• Financial Acumen - How well the startup understands and manages financial resources. It shows that the founders are prudent, realistic and have a clear plan for managing capital efficiently.
• Strategic Prioritization - The allocation of funds highlights the startup’s priorities. It answers crucial questions about which aspects of the business are deemed most critical to its success and how different areas will be balanced.
• Growth Potential - By showing where the funds will be spent, this slide outlines the startup's roadmap for growth. Investors can see how their investment will fuel key activities like market expansion, product development or talent acquisition.
• Return on Investment - Ultimately, investors want to know that their investment will yield a significant return. The use of funds slide should connect the dots between the investment and the anticipated growth outcomes, indicating a clear path to profitability.

Crafting an Effective Use of Funds Slide

An effective use of funds is more than a simple list of expenses. It weaves a narrative that aligns your financial planning with the long-term objectives of your startup.

Clarity and Precision

The use of funds slide must be clear and precise. Avoid vague categories and generalizations. Instead, provide specific, itemized breakdowns of how the funds will be allocated.

This might include detailed percentages or figures for areas like product development, marketing, staff salaries or operational costs. The aim is to give investors a transparent and detailed view of your spending strategy, ensuring they understand exactly how their capital will be utilized to drive growth.

Aligning with Business Goals

Every dollar outlined in your use of funds slide should clearly contribute to your overarching business goals.

Whether it's expanding your team to accelerate product development or allocating funds for market research, it's important to show how each expenditure is a strategic step towards achieving your business objectives. This alignment reassures investors that their funds will be used to directly support the growth and scalability of your startup.

Presenting Evidence

Support your financial projections and allocations with evidence. This could include market research, pilot studies or historical financial data from your business.

Demonstrating a data-driven approach in your financial planning adds credibility to your use of funds slide. It shows investors that your allocations are not just theoretical but are based on solid research and realistic projections of your business’s growth trajectory.

Common Mistakes to Avoid in Your Use of Funds Slide

We'll preface this section by saying that your mileage may vary, as different investors look for different things in pitch decks. However, there are some common mistakes that founders run into when presenting their business plans.

• Overgeneralization - One of the most common errors is being too vague about how the funds will be used. Broad categories like 'marketing' or 'development' don't offer enough insight into your strategy. Investors prefer detailed breakdowns that show a thorough understanding of how each dollar will be utilized.
• Lack of Alignment with Business Strategy - Every item on your use of funds slide should directly relate to and support your overall business strategy and objectives. Including expenses that don't clearly contribute to specific business goals can raise doubts about your strategic planning abilities.
• Unrealistic Projections - Overly optimistic or unrealistic financial projections can be a red flag for investors. Your financial needs should be grounded in realistic assumptions and backed by credible market research and data.
• Ignoring Operational Costs - While it might be tempting to focus solely on growth-focused expenditures like product development or marketing, neglecting to include operational costs can give an incomplete picture of your financial needs and raise questions about your understanding of running a business. And conversely, only including salaries in your use of funds slide tells investors that you aren't as focused on growth as you should be.
• Forgetting Contingency Plans - Not including a budget for contingencies or unexpected expenses can make your financial planning appear naive. It's important to show investors that you're prepared for potential hurdles.
• Omitting Future Funding Rounds - If you anticipate the need for additional funding rounds in the future, it's wise to mention this in your use of funds slide. This transparency helps set realistic expectations about the company's financial trajectory and funding requirements.

Preparing for Investor Questions

When presenting your pitch deck, particularly the use of funds slide, be prepared for a thorough questioning from potential investors. These questions are not just about validating the information presented, but also about gauging your understanding of the business and your readiness to handle the challenges ahead.

• Clarifications on Expenditure Breakdowns - Investors may ask for more details about specific line items on your use of funds slide. Be prepared to explain the rationale behind each allocation, how you arrived at the figures and how each expense will contribute to the business’s growth.
• Assumptions Behind Projections - Be ready to discuss the assumptions underlying your financial projections. Investors will be interested in understanding the market research, historical data or trends you’ve used to inform your forecasts.
• Scalability and Long-Term Funding - Questions may arise about your startup’s scalability and long-term financial sustainability. Investors will be interested in how the current funding round will help you reach key milestones and what your plans are for future funding needs.
• Risk Management and Contingency Plans - Expect questions about risks and your plans to mitigate them. Be honest about the risks your business faces and discuss your strategies for managing these risks, including contingency budgets.
• Performance Metrics and Milestones - Investors will likely inquire about the metrics and milestones you plan to use to measure success and progress. Be specific about your key performance indicators and how they align with the use of funds.
• Operational Costs and Management - Be prepared to discuss the operational aspects of your business. This includes questions about day-to-day management, the efficiency of operations and how operational costs have been factored into your financial planning.

Remember, the key to effectively addressing investor questions is not just in providing the answers, but in demonstrating a deep and thoughtful understanding of your business. Your responses should reflect thorough preparation and confidence,

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How To Write the Funding Request for Your Business Plan

What goes into the funding request, parts of the funding request, important points to remember when writing your request, frequently asked questions (faqs).

MoMo Productions / Getty Images

A business plan contains many sections, and if you plan to seek funding for your business, you will need to include the funding request section. The good news is that this section of your business plan is only needed if you plan to ask for outside business funding. If you're not seeking financial help, you can leave it out of your business plan. There are a variety of  ways to fund your business  without debt or investors. Below, we'll cover how to write the funding request section of your business plan.

Key Takeaways

• The funding request section of your business plan is required if you plan to seek funding from a lender or investors.
• You'll want to include information on the business, your current financial situation, how the money will be used, and more.
• Tailor each funding request to the specific funding source, and make sure you ask for enough money to keep your business going.

The funding request section provides information on your future financial plans, such as when and how much money you might need. You will also include the possible sources you could consider for securing your funds, such as loans or crowdfunding. Later, you can update this section when you need outside funding again for business growth.

An Outline of the Business

Yes, you've done this already in past sections, but you want to give potential lenders and investors a recap of your business. In some cases, you might simply share the funding request section so you need to have your business details such as what you provide, information about your target market, your structure (i.e. LLC), owners' and members' information (for partnerships and corporations), and any successes you've had to date in your business.

Current Financial Situation

Again, you've provided some financial information in the financial data section , but it doesn't hurt to summarize. If you're submitting just the funding request, you'll need this information to help financial sources understand your money situation.

Provide financial details such as income and cash flow statements, and balance sheets in your funding request section.

Offer your projected financial information as well. If you're asking for a loan for which you'll be offering collateral, include information about the asset. If the business had debt, outline your plan for paying it off. Finally, share how you'll pay the loan or what sort of return on investment (ROI) investors can expect by investing in your business.

How Much Money Do You Need Now and in the Future?

Indicate what type of funding you're asking for such as a loan or investment. Outline what you need now and what you might need in the future as far as five years out. 

How Will the Funds Be Used?

Detail how you'll be using the money, whether it's for inventory, paying a debt, buying equipment, hiring help, and more. If you plan to use the money for several things, highlight each and how much money will go to each.

Most financial sources would rather invest in things that grow a thriving business than things that pay for debt or overhead expenses. 

Current and Future Financial Plans

Current and future financial plans include items such as loan repayment schedules or plans to sell the business. If you're getting a loan, outline your plans for repayment (although most lenders will have their own schedules). If you have plans to sell the business, let the lender know that and how it will affect them. Other issues to consider are relocation (if you move) or a buyout. Finally, let investors know how they can exit the deal, such as cashing out (and how long before they can do that).

You're asking for money, so you need to always be professional and know your business inside and out. Here are some other things to keep in mind:

• Tailor your funding request to each financial source : Lenders and investors need different information, such as loan repayment versus ROI, so create different reports for each. 
• Keep your funding sources in mind : Each resource will have different questions and concerns. Do a little research so you can address them in your report.
• Ask for enough to keep your business going : Don't be stingy, as you don't want your business to fail from a lack of money. At the same time, don't be greedy, asking for more than you need. 

How do you request funding for a nonprofit?

Most nonprofits seek funding in the form of grants. Write a grant proposal that includes information on the project or organization, preliminary budget needs, and more. Be sure to format it with a cover letter, proposal summary, the introduction of the organization, problem statement, objectives, methods, evaluation, future funding needs, and the budget.

What are three methods of funding?

Grants and scholarships, equity financing, and debt financing are the main three methods of funding for small businesses . Grants and scholarships do not need to be repaid and are often best for nonprofit organizations. Equity financing is when you receive money in exchange for ownership and profits. Debt financing is when you borrow money that needs to be repaid.

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Home > Business Plan > Funding Requirements in a Business Plan

Funding Requirements in a Business Plan

… our funding requirements are …

The summary given in the funding requirement section should be consistent with the rest of the business plan. The amount needed, and when it is needed should follow from the detailed financial projections, and the purpose of the funding, sales and marketing, hire of employees, to achieve a milestone etc. should again link in with the rest of the plan,

Funding Requirements Presentation

This is part of the financial projections and Contents of a Business Plan Guide , a series of posts on what each section of a simple business plan should include. The next post in this series is the final section, and deals with the planned exit for investors.

About the Author

Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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Home > Sustainable Investing > Introduction to Funds Type Statements

Introduction to Funds Type Statements

Written by Brooke Tomasetti | Reviewed by Subject Matter Experts

Updated on September 7, 2024

Controlling the flow of funds  through a business is an important management activity. An analyst may judge the overall quality of management by interpreting the clues about how successfully the management team brings funds into the company and how successfully management allocates those funds once raised. There are several financial statements that may assist the analyst in gathering clues about funds flow.

Funds Type Statements

Funds Type Statements are statements showing how funds flow through a business. Some examples include:

Examples of Funds Statements

Statement of changes in financial position, cash flow statement, funds statement.

Statements showing the flow of funds throughout a business may provide clues about the quality of management.

Sample Statements

Constructing a Funds Statement

• Compare Two Balance Sheets
• Identify Changes in Each Item
• Classify Those Changes as  Sources  or  Uses of Funds
• Assemble Information in Desired Format
• Analyze the Information

Sources and Uses of Funds

Sources of funds.

• Increase in a Claims Item
• Decrease in an Asset Item

Uses of Funds

• Increase in an Asset Item
• Decrease in a Claims Item

Classifying Changes

Example of classifying changes.

In the Funds Statement example below, the cash account goes from $20,000 on the first, Beginning Balance Sheet to $5,000 on the second, Ending Balance Sheet. That is a decrease of $15,000. A decrease in an asset item is a  source of funds . Other changes would be classified accordingly.

Funds Statement – Step 1

Analyzing Information

When analyzing the information that goes into a funds statement, each item should be analyzed in detail and the overall impact of any change should be examined.

In the funds statement example below, the company appears to be profitable because retained earnings increased. Also, the company paid off a great deal of debt and purchased some fixed assets. To finance these moves, the company relied on reductions in inventory, receivables, and cash, as well as plowed earnings back into the firm.

Funds Statement – Step 2

This overview was developed by Dr. Sharon Garrison. No adaptation of its content is permitted without permission.

1. What are fund statements/financial statements?

Fund statements, also known as financial statements, are a compilation of a company's assets, liabilities, and owners' equity at a specific point in time. The purpose of fund statements is to provide insight into a company's overall financial position and performance over a period of time.

2. What are the types of financial statements?

There are three primary types of financial statements: the balance sheet, income statement, and cash flow statement. The balance sheet shows a company's assets, liabilities, and owners' equity at a specific point in time. The income statement shows a company's revenue and expenses over a period of time, while the cash flow statement provides information on how cash moves in and out of a company.

3. What is a source of funds statement?

A source of funds statement is a financial statement that shows the sources of a company's cash flow. It identifies the various items that contributed to a company's increase or decrease in cash, as well as how those changes impacted the company's overall financial position.

4. What are the 5 financial statements?

The 5 financial statements are the balance sheet, income statement, cash flow statement, statement of changes in owners' equity, and statement of cash flows. These statements provide a comprehensive view of a company's financial health and performance over time.

5. What are the benefits of a funds statement?

A funds statement can provide a company with a detailed overview of its financial position and performance. It can help identify areas where the company is generating cash, as well as areas where it is spending more cash than it is taking in. This information can be used to make informed decisions about how to best manage and grow the business.

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How to use a Business Plan?

Business Plan Template

• Vinay Kevadia
• September 6, 2024

15 Min Read

If you’re entering the entrepreneurial world, you’ve likely been told to start with a business plan.

However, simply creating a business plan isn’t enough. The true powers of a business plan unravel when you use it actively to drive your business forward.

Whether you’re launching a business, securing funding, evaluating growth opportunities, or guiding your team— a business plan is more than just a document. It’s a versatile tool that can support almost every aspect of your business when used consistently.

Want to learn how?

Well, in this blog post, we’ll dive into more details about how to use a business plan . But before that.

Why is a business plan important?

A business plan is an important document, whether you use it for formal or internal use.

Here are a few reasons why this document is important:

• Gives you a roadmap to achieve your business goals.
• Offers a framework for making strategic decisions.
• Outlines the business goals and sets benchmarks for tracking business performance.
• Secures funding for your business by demonstrating financial sustainability.
• Helps overcome the challenges by developing mitigation strategies.
• Aligns the team members and stakeholders by facilitating clear communication.

Now, let’s understand the different use cases of a business plan to launch, grow, and fund your business.

How to use a business plan to start a business

A business plan is a quintessential document that can help you plan and launch your business. Whether you need to validate a business idea, establish your goals, or equip yourself with the understanding of a target market—a business plan helps with it all.

Here’s a more detailed overview of how a business plan can help start a business.

1. Validate your business idea

Before investing money in a business venture, you need to test the viability of your business idea.

You need answers to questions such as:

• Should I pursue this business venture?
• Who will be the target audience for my solution?
• How much sales will it make?
• What is the scope of scaling my business idea?
• How is my idea different from that of existing competitors?

A business plan can help you find answers to these critical questions.

Whether it’s the market, competitors, product offerings, expected sales, business objectives, or your finances—a business plan helps you assess each aspect of your business idea to test its overall feasibility.

Evaluating your business idea using a business plan forces you to address the gaps in your business idea.

This validation step ensures you don’t invest time and resources in an idea that may not succeed.

2. Establish business goals and mission

A business plan offers a strategic framework to transform vague business aspirations into concrete goals. It makes it easier for you to communicate what your business stands for and what it aims to achieve with a clearly defined mission statement.

A business plan helps you align the short-term goals of your business with its ultimate mission. It guides you in setting clear KPIs to help you track the progress and success of your goals.

With a well-defined mission, objectives, and value proposition, businesses tend to stay on their path.

3. Navigate market entry

Writing a business plan nudges you to understand the market space in which you will operate. It helps you determine your unique brand position and guides you to target the right set of people for your business.

A business plan details the exact steps of how you will introduce your business to the market. Whether it’s the position of your product, identifying your go-to-market strategy, strategizing the pricing, or securing the distribution channels—a business plan guides you to perfect your market launch.

To summarize, a business plan minimizes the risks associated with a new market by strategizing your market entry.

4. Plan the operations

A business plan turns your vision into an operational roadmap to help you optimize your business operations.

It helps you find answers to questions like these.

• What will be the SOP (standard operating procedure) of a business function, i.e., manufacturing, marketing, and hiring?
• Who would look after particular processes?
• How many people will you require to fulfill a task?
• Where will you perform the business activity?
• How will you ensure the quality of your services?

An operational plan outlines everything, helping you allocate the resources and establish clear workflows.

A business plan is further used to identify the gaps and bottlenecks in your operations. A regularly reviewed business plan accommodates the changing market conditions by introducing timely changes to your operations.

In short, an operational plan ensures that the business runs smoothly and is prepared to scale optimally.

5. Identify professional gaps

Even if you’re starting a business as a solopreneur, you will require the expertise of professionals to fulfill your business objectives. This is where a business plan can be of help.

Writing a business plan helps you identify the gaps in your current capacity. With this knowledge, you can determine the skills and people essential to execute your business strategy.

This can be an accountant, product developer, marketing specialist, legal head, or financial expert.

Once you identify a professional gap, a business plan can assist in onboarding the right type of people for your business. It offers you a detailed hiring and training plan to ensure everyone on the team remains aligned to a common goal.

6. Build strategic a. alliances

Entrepreneurs need to build relationships with suppliers, vendors, and other strategic partners early on to accelerate their market growth.

A business plan can help identify potential partners for your business. Besides, it can help you build valuable relationships with your potential partners by outlining the benefits and goals of the partnership for them.

When you approach someone for a partnership, they will have questions about growth, finances, business goals, and your outlook. Having a business plan handy will help you answer them confidently.

Moreover, a business plan will help evaluate the favorable terms of a strategic alliance. This knowledge can be used to guide the negotiations and get a contract that favors your business.

This excerpt by Jonathan Goldberg , the CEO of Kimberfire , demonstrates how they used a business plan to get a significant partner on board.

“ Kimberfire acquired a partnership with the World’s largest diamond manufacturer using a business plan. By clearly outlining our market strategy and growth projections we were able to demonstrate the value of a partnership that offered direct access to high-quality diamonds at competitive prices. This partnership not only bolstered our inventory but also allowed us to pass on significant savings to our customers, thereby enhancing our competitive edge.”

7. Forecast the capital requirement

Lastly, a business plan can help you understand capital requirements for your company. It helps determine the costs to start and run your business.

Such information guides you in evaluating your funding options.

By referring to your startup costs , you would know whether bootstrapping would be enough or if you would need loans and funding from investors.

These are just a few ways in which one can use a business plan to start a business. However, the use cases can be exhaustive depending on the details put into your plan.

How to use a business plan to secure funding

Most businesses may require funding from external sources to launch or grow their business.

Now, it doesn’t matter whether they secure funding through investors, banks, or grants. What’s important is that they have a business plan to prove the financial sustainability of their business.

Here’s how one can use a business plan to secure funding and convince investors:

8. Define funding needs

A business plan can help you determine the funding essential for your business. Moreover, it can also help evaluate the funding source that’s better suited for your business.

By building detailed projections for costs, expenses, sales, and cash flow, your plan helps determine the capital essential to launch or grow your business.

Additionally, a business plan can be used to justify your funding demands. A clear funding plan explains how you intend to use the investor’s money, i.e., buy new machinery, hire new staff, or expand the business operations.

This clarity demonstrates careful financial planning and builds investors’ confidence in your venture.

9. Manage fundings

Your funding plan already includes details about where you intend to use the money. However, you can now use it to create a detailed roadmap.

A well-planned business plan demonstrates how you should delegate the funding to different business departments. Additionally, it guides you in managing the secured funds efficiently by helping you set budgets, financial controls, and performance trackers.

This detailed approach assures investors that their funding is used responsibly and efficiently.

Further, as you update the plan, identify if your execution strategy requires change. If so, you can make the necessary changes and update the investors, keeping them in the loop. This will help them trust you more.

10. Support the loan application

A business plan is compulsory for everyone submitting an SBA loan application. Even private lending firms would require a business plan to make their funding decision.

A well-detailed business plan is sufficient to support your loan application. It demonstrates that you have conducted essential planning to make your business idea viable and sustainable.

A business plan answers all the questions that a lender might have to assess your creditworthiness and repayment capacity.

Questions such as:

• What will be the profitability of your business?
• What are the major cost drivers of your business?
• What will the debt-to-equity ratio be if you approach investors?
• How stable is your cash flow?
• What will the ROI and the payback period be?

Lenders can trust you more when they get essential answers backed with data.

That said, let’s understand how a business plan can drive enterprise growth.

How to use a business plan to grow your business

A business plan can be instrumental in testing different scenarios, evaluating growth opportunities, and making strategic decisions. All these help you grow your business and face the challenges efficiently.

Here’s how:

11. Guide strategic decisions

A business plan can help you make strategic decisions that align with your ultimate growth objectives.

Whether you want to launch a business at a new location, invest in new machinery, introduce a new product line, hire new employees, or onboard new technology—a business plan can help.

A business plan provides a framework to assess the risks, opportunities, and financial impact of a strategic decision on your business. It helps determine the right time to launch your growth initiative and demonstrates whether making a particular decision will be fruitful or not.

This way you won’t make a decision that can put you off your long-term goals.

12. Monitor business performance

Once you make a strategic decision, use your business plan to clarify the strategy and outline your execution plan.

A business plan can additionally assist in measuring business performance against set KPIs and performance benchmarks. Regularly evaluating these metrics allows you to identify areas that may need improvement or adjustments.

By using the business plan as a performance management tool, you can make data-driven adjustments to your approach and grow your business sustainability.

13. Adapt to market changes

A business plan isn’t set in stone. It’s a living document that adapts to changing market conditions.

It can be used to adapt your strategies based on new market data and shifts in customer preferences. Such regular updates help you remain competitive and agile in the face of changing market conditions.

Additionally, a business plan can help you develop a response to an emergency crisis.

A business plan accommodates all your strategies, milestones, metrics, tactics, and projections in one place. By using the plan as a performance dashboard, you can anticipate the changes and adjust the priorities to deal with the crisis.

Mark McShane offers a practical example of how he used a business plan to meet contingencies in his company, Cupid PR .

 “When we hit cash flow problems, we followed the financial contingency section of our plan to manage expenses and short-term funding. We were able to quickly implement the cost-saving strategies and secure a bridge loan to stabilize our finances without sacrificing growth. Business plan made it possible to respond to this challenge efficiently which gave us a 40% revenue increase the next year.”

14. Test different scenarios

A business plan can be used as a tool for scenario analysis.

As the regulatory, economic, and competitive landscape of a business evolves, you need to test and plan for different scenarios, like:

• Entry of a new competitor
• Regulatory changes
• Technological advancement
• Market demand shifts
• Natural disaster

Businesses can evaluate the financial and operational impact of these scenarios using a business plan. By using business plan forecasts as a base, they can prepare for various worst- and best-case scenarios.

Preparing for different scenarios helps you leverage the opportunities and mitigate the risks whenever they arise.

Those are quite a few ways in which a business plan can assist or facilitate growth. Entrepreneurs can find more ways to use a business plan depending on the depth that their plan covers.

How to use a business plan internally

One of the most essential uses of business plans is to guide your operations, management, and team toward the goal.

Here’s how.

15. Align team and stakeholders

A business plan is an excellent tool for aligning your team and stakeholders toward a common mission.

A well-crafted business plan documents the company’s goals, mission, KPIs, and milestones. With the basics clearly articulated, it gets easier to bring your internal team and stakeholders on the same page.

Now, you don’t need a detailed plan to convey your goals. A simple list of goals and how they contribute to your ultimate objectives is enough for internal use.

This quote from our conversation with Shawn Plummer , the CEO at the Annuity Expert , shows how he used a business plan to drive a 50% revenue increase in 2 years:

“By breaking down our growth strategy into clear, measurable goals, the business plan became more than just a document; it was a tool for uniting our team. Everyone, from marketing to operations, understood how their efforts related to our overall goals. This connection was critical to our success, resulting in a 50% revenue rise in just two years.”

16. Streamline business operations

A business plan can streamline business operations by outlining the standard operating procedures (SOPs) for different business processes. It’s further used to define the responsibilities, resource allocation, and hiring plans for your organization.

Remember, a well-crafted operations plan acts as a guidebook for your business. It details every process, responsibility, and resource essential for running a smooth operation. Referring to it can help increase efficiency, reduce waste, and enhance productivity.

Now if you’re writing a traditional plan, you’ll have a detailed section on business operations. However, if you’re writing a lean plan, we recommend building a separate internal operations plan to guide your business operations.

Simply list the business processes, create an outline, and use ChatGPT to write a business plan . Your internal use operations plan doesn’t need to follow a specific format or structure. It should just distill clarity.

17. Efficient performance reviews

A business plan outlines the KPIs and goals, offering you a benchmark to evaluate the individual performance of team members. These metrics can be used to track actual results and take appropriate actions.

A business plan helps foster the environment for continuous development by linking performance to strategic goals.

That’s a few definite ways to use business plans for internal growth and management. Internal business plans can follow any structure or format, as long as they get the task done.

How to keep your business plan relevant

As we discussed, a business plan is a living document that requires frequent updates and changes to maintain relevancy.

Ideally, one should update their business plan at least once a year to keep it useful. However, businesses in highly volatile or competitive markets should consider reviewing it quarterly.

A business plan must represent accurate market conditions. If that’s not the case, a review should incorporate new market trends into the strategy, adjust the operational realities, and revise the financials. This ensures that your plan remains relevant and realistic to help you achieve your business objectives.

Include your team members in the review process to ensure the strategies address their key concerns and align with the entire organization.

All in all, adopt a flexible planning approach to keep your plan relevant to the dynamic world.

By now, you have a thorough understanding of the different uses of a business plan. However, these use cases are only relevant if you have a realistic and actionable business plan offering a true overview of your business. Only then can you use a business plan to launch, grow, and fund your business.

Now, draft a quick business plan using the Upmetrics business planning app . Its AI planning features, business plan templates, financial forecasting assistance, and detailed guides will help you prepare a reliable business plan in no time.

Build your Business Plan Faster

with step-by-step Guidance & AI Assistance.

Frequently Asked Questions

What is the most common use of a business plan.

A business plan is most commonly used to secure investments from investors. Additionally, organizations use it to define strategic goals, guide business operations, and evaluate the company’s performance.

How do you use a business plan for a small business?

A business plan offers crucial help to small businesses in the following ways:

• Idea validation
• Navigating market entry
• Planning business operations
• Building strategic alliances
• Forecasting the capital requirements

How do I use a business plan to attract investors?

A business plan can be used to prove the financial sustainability of a business idea. Investors can evaluate whether their investment would offer enough ROI, profitability, and growth by referring to your in-depth business plan. When they see that you’re well-prepared to face real market situations, they feel convinced of your ability to run a business.

How often should a business plan be updated?

Ideally, you should update a business plan at least once a year. However, businesses operating in dynamic, competitive markets need more frequent reviews. This can be monthly or quarterly.

Why is it important to review a business plan over time?

A business plan offers a roadmap to achieve your business objectives. But, if not updated often, your plan won’t reflect the current market. This will make your plan irrelevant and distant from your goals. To avoid such situations, it’s important to review your plan regularly.

About the Author

Vinay Kevadiya

Vinay Kevadiya is the founder and CEO of Upmetrics, the #1 business planning software. His ultimate goal with Upmetrics is to revolutionize how entrepreneurs create, manage, and execute their business plans. He enjoys sharing his insights on business planning and other relevant topics through his articles and blog posts. Read more

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11 Ways to Use Funding for Your Business

This article contains general information and is not intended to provide information that is specific to American Express, or its products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.

Small business owners who’ve secured financing — whether through a loan, business line of credit , or a credit card — may not know how to best use their new funding. Assuming that they are permitted by a lender’s terms, here are some potential ways to use the funding:

11 uses of funds in business

With a strategic plan, small business owners will be less likely to waste the opportunity to put the funds to work for their business. To develop a plan, consider these 11 ways to use small business funds.

1. Purchasing inventory

One of the many common reasons that business owners pursue a loan is to purchase inventory. Many businesses need a significant amount of inventory to keep their companies running smoothly, and this can sometimes be difficult — especially if a business is just getting started or experiencing unusual demand.

Using a small business loan to buy inventory could be a good way to respond quickly to consumer demand, prepare for peak shopping seasons, and set businesses apart from the competition.

2. Investing in equipment

Unfortunately, small business owners aren’t always prepared financially when a piece of equipment breaks down and needs to be replaced. Other companies may put off growing their business because they don’t have the funds to purchase the necessary equipment for expansion.

A small business loan can help companies get the funds they need to upgrade, replace, or purchase more equipment.

3. Hiring staff

Whether small business owners are ready to hire their first employee or need to bring on additional staff to help meet growing business demands, hiring staff is a considerable investment. Business owners could consider using funding to engage a hiring agency to help recruit new employees or provide a signing bonus for new hires.

4. Building a website

In today’s digital marketplace, it’s nearly impossible to compete without having an attractive website that’s easy to navigate and use.

What many new business owners may not realize is that the cost of building a killer business website goes beyond just buying a domain. In addition to domain and hosting costs, there are also fees involved with using a drag-and- drop website building service.

If a business owner is planning to hire a professional, web development services can range anywhere from $1,000 to $100,000 depending on business needs. A business loan may be a great way to cover these start-up costs for a new website.

5. Developing your marketing

Although having an effective website is important, small businesses still need to market their products or services. If small businesses plan to handle their marketing in-house, there are a variety of marketing tools that can help promote the business online and off.

Many businesses also choose to focus on their core business and outsource their marketing to a contractor or agency.

6. Covering operational expenses

When business is slow, or if companies find themselves dealing with unexpected costs, they may sometimes need short-term help to cover recurring operational expenses — like utilities, accounting, or paying staff.

A business loan can help companies get the funds they need to keep things running smoothly in the meantime.

7. Expanding your business

Forty-one percent of small businesses apply for funding in the hopes of expanding their businesses or taking on opportunities. There are many costs to consider when expanding a business. In fact, many of the uses for a business loan that are outlined above are expenses that one might incur during a growth stage.

Whether needing to buy more inventory or equipment, hire more staff, or expand other aspects of a brand, a business loan can help give small business owners the initial funding they need to take their business to the next level.

8. Managing cash flow

Cash flow describes the process of how a company receives and disburses funds. The way companies manage the money that enters and leaves their business can be the difference between success and failure. Small business owners may need short-term financing to help them cover their recurring expenses during a cash flow crunch or to capitalize on opportunities to grow profits.

If borrowers have access to short-term financing, they won’t have to turn down a new opportunity just because they lack available cash in their bank account. If extra training, a piece of modern equipment, or a larger inventory order would contribute to the bottom line, a line of credit could provide the solution.

9. Weathering unexpected problems

Running a business includes confronting a series of risks. Some threats to a company could reduce income or increase costs. Often, the way that companies can manage risks determines their success and, in many cases, their longevity.

No matter how well a business plans, unexpected problems arise from time- to-time. If stores have to close because of foul weather, an employee wrecks the company car, or some other unanticipated problem arises, small businesses could find themselves strapped for cash.

Without the resources to fix or even wait out certain problems, even a profitable and solid business could fail. When small business owners have a line of credit or other kinds of financing, they can feel more prepared to deal with unexpected expenses.

10. Improving your business’ creditworthiness

Lenders want proof that a company manages debt well. If a business never borrows money, it can be tough for it to build a credit history.

Using funding from an online or traditional lender for sound business reasons may help build credit history. If business owners establish a good history of making prompt payments and managing credit well, they have the potential to become a more attractive customer for all kinds of lenders.

Once small business owners can confidently show lenders they can manage loans well, they may find they are able to get more favorable rates or terms on their financing.

11. Leveraging expertise

Business owners also use credit lines to access advice and training from experts in their fields. For example, if a company has a sales team and it determines they would be more successful with a new script and a new approach, the CFO may decide to hire a sales consultant to help draft the new script, train the sales staff, and implement the program.

Similarly, if business owners decide that new software would speed up their business processes and lower expenses, they may choose to use their business line of credit to hire a software consultant to help them choose, install, and use the software.

How can businesses get funding?

Of course, small business owners need to first secure funding before figuring out how to use it. Some common forms of funding include:

• Grants: Many regional governments, non-profits, and corporations offer small business grants , which supply lump sum funding that doesn’t need to be paid back. Grants are often tailored to specific kinds of small businesses, so owners should review eligibility criteria before applying. Getting a grant is never a guarantee as the process tends to be competitive.
• Small Business Administration (SBA) loans: SBA loans are backed by the federal The SBA partners with lenders to decrease risk and get borrowers better repayment terms. SBA loans often require proof of strong annual revenue, and extensive personal and business documentation.
• Small business loans: Borrowers may be able to get a small business loan at a low interest rate and with favorable repayment terms, but they can be difficult to qualify for, typically requiring collateral and strong annual revenue. The application process can be made faster and more flexible by applying online and having some documentation already
• Credit lines: While credit cards usually have high interest rates, many also offer sign-up bonuses, introductory 0% APR periods, and cash back rewards that could make a credit card an interesting option. Small business owners can also opt for a business line of credit, which offers a pre-set line of credit from which business owners are often able to draw upon as needed. With a business line of credit, borrowers only pay a fee on the amount they use.

The material made available for you on this website is for informational purposes only and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.

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