Steps to Growth Capital Self-Study GuideStep 1

1.3 Analyse Your Current Financial Situation

Once you've developed a business plan describing your company's objectives, then you're ready to start analysing your financial situation. You'll have to figure out how much money you'll need and what it will be used for.

Make sure your financial statements are in order. A list of these statements appears below.

Income Statements

These show a breakdown of your total sales and total expenses.

 

Statement of Retained Earnings

These show retained earnings accumulated since your company began operations. Retained earnings are important for businesses since this money (internal sources of funds) is used to fund growth (working capital) and buy fixed assets (equipment, machinery, etc.).

 

Balance Sheets

These show what a company owns (assets) and what it owes its lenders (liabilities) and shareholders (owners' equity).

You begin by examining your financial statements to identify the amount of money you currently require in key areas. Then, based on your business objectives and plans, you forecast the amounts you'll need. There are four key areas to consider when you examine your current situation and forecast your needs:

For example, New Tech, a company producing computer hardware, found that it needed $1,575,000 to finance its projected growth, including the introduction of a new product line. New Tech's needs break down as shown in the following table.

New Tech
Working Capital	$200,000
Fixed Assets	$1,100,000
Marketing Costs	$225,000
Financial Cushion	$50,000
Total	$1,575,000

The calculations used to produce these figures are based on careful analysis of financial statements and projections. The next page takes a closer look at how this forecasting is done.

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