The major reason for not obtaining financial statements is the seller’s management often fails to support the need for financial information so it is difficult to establish or enforce a policy requiring the customers to provide this information.

In light of Enron, WorldCom and several other firms recently discovered to have not disclosed or omitted pertinent information, many now question if financial statements are relevant. After all, if the information reported fooled Wall Street analysts how is the uninformed or amateur analyst supposed to be able to detect incorrect accounting practices? At this writing the Securities and Exchange Commission (SEC) reports they have 300 active on-going investigations of suspected fraudulent financial reporting by publicly held companies.

Add to this the new Sarbanes-Oxley Act that has many professional accountants raising questions about accounting procedures and the analysis of financial data becomes more confusing then it was before 2000.

The problem with financial statements long before all this mess was revealed was they reported past performance. Whether a concern reported spectacular or poor financial results was no assurance they would continue to do so. This is why it has always been recommended when analyzing financial information the analyst has at least two and preferably three years of data so a trend could be established.

How often, however, do we as for a business plan? This is something all businesses, not just start-ups, should prepare annually. A business plan is the company’s “road map”. A business without a plan is similar to driving to a destination without a map. One would eventually get to their destination but how much time would be spent along the way lost and frustrated?

The importance of the business plan forces the company to examine its strengths and weaknesses and identify what needs to be done to succeed. Thus the business plan is a written statement of the company’s goals and strategies and presents information others, such as trade creditors, bankers and investors, may need for evaluation.

A well-written business plan should include the following elements:

Executive Summary – a brief statement that highlights the main points of the business plan, including the type of business (manufacturer, distributor, retail), the products or services provided, type of customer, company goals and objectives and history of the business.

Mission Statement – a one to two sentence statement focused on the company’s highest goals and core purpose of the business.

Products/Services – identifies the products/services the business sells and describes the benefit of the products/services.

Operations – describes how the day-to-day operations of the business is run and describes inventory and supply levels. This could also contain biographies of key owners, officers, and employees.

Business Information – this section should address the legal structure of the business and include any information about changes in the legal structure during the next twelve months. Also included would be any information about insurance, health and safety issues, zoning requirements and expansion or downsizing issues.

Competitive Analysis – identifies major competitors and comparison of products/services in terms of quality, price and customer service. This should address why customers would choose doing business with the company rather then competitors.

Marketing Strategy – identifies current customers and markets and how the business will promote and sell product/service during the next twelve months.

Financial Information – includes a list of assets, liabilities and net worth.

Budget – includes projected expenses such as payroll taxes and employee benefits, rent, utilities, supplies, insurance, advertising and promotion and projected cash flow.

Capital Equipment – any new equipment purchases during the next twelve months including cost, estimate life and monthly depreciation.

Sources and Uses of Financing – a list of financing sources and a summary of what the cash will be used for.

A well-prepared business plan is the sign of a successful organization, is often easier to obtain then financial statements, and more easily interpreted then financial statements.

I wish you well.

This information is provided as information only and not legal advice. Legal advice should be obtained from a competent, licensed attorney, in good standing with the state bar association.