The principle
A balance sheet presents assets, liabilities, and equity at a particular date. An income statement reports revenue and expenses over a period. A cash flow statement explains cash movement through operating, investing, and financing activity. Together, they help a lender understand capacity and obligations more clearly than a bank balance alone.
Put it into practice
Prepare comparable periods and current interim results. Reconcile large differences between year-end statements, tax information, and management reports before sending the file. Label the accounting period and currency. Explain acquisitions, unusual revenue, owner transactions, and changes in accounting treatment that affect comparisons.
What people often miss
Preparation standards vary. Internally prepared, compiled, reviewed, and audited statements do not provide the same level of assurance. Ask which format the lender needs rather than paying for unnecessary work or submitting something insufficient. A profitable income statement can coexist with cash strain if receivables grow, inventory builds, or debt principal consumes cash.
Your next-step checklist
- Complete statements with dates and currency
- Current interim comparison
- Explanation of unusual or nonrecurring items
- Requested preparation and assurance level
Crack this combination.
Can a profitable business still face a cash shortage?
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Sources & further reading
This file draws on the following references. Product availability and requirements must be confirmed with the provider.
Levr: financial statements explained