Financials Made Simpler


Stop relating the term “financial statement” as a formal report from your bank about your checking or savings account.

Your financial statements will not be based on past experience but upon projections.

Don’t think of the budget as a corporate budget, but as a personal budget. You are the one.

If you are starting up with other indie entrepreneurs they will be listed as assets, not liabilities.

Place a financial value on your indie entrepreneurs and count them as investment income.

Breakeven point will tell indie entrepreneurs and outside investors when they can expect to see profit.

Engage the services of a CPA or attorney to assure the accuracy and legality of your financial plan.

Foreword: I must begin this class by revealing that the development of a financial plan is not one of my strengths. This essay is for informational purposes only based on my research, not my experience. It should not be considered legal or financial advice. You should consult with an attorney or other financial professional to determine what may be best for your individual needs.

Financial Statements for Small Business Startups

The content of this class assumes that you might be developing a financial plan to present to a potential lender or investor. However, the plan is just as important to you. After all, you are the principal investor.

If you search online for templates or outlines for what you need to include in a financial plan, you will be overwhelmed by the amount of data you are supposed to provide. So much of it is based on existing enterprises that already have a track record and the data to support it.

As a startup or restart, you don’t have up-to-date data. You are looking forward, not backward.

To get past the intimidation, stop relating the term “financial statement” as a formal report from your bank about your checking or savings account. Or a balance sheet showing profit and loss.

Your financial statements will be speculative, not based on past experience but upon projections based on the facts as you know them. Your documents will be simple and reinforced with narrative.

Here are six simple documents you should generate:

  • A budget based on projections.
  • A worksheet showing startup costs.
  • A projected profit and loss statement.
  • A projected balance sheet.
  • A list of funding sources.
  • A break-even analysis.

Again, your numbers will be speculative and you should make them reasonable. Don’t overestimate and don’t underestimate. Be able to defend your projections.

Draft a Startup Budget

Your startup budget will show monthly projections for the first year.

Don’t think of the budget as a corporate budget, but as a personal budget. You are the one. You are more like a homeowner than a business owner at startup and you’re process should be kept just as simple. However the numbers will be bigger because you will have a larger cash flow in and out of the budget.

Your investors include yourself, your volunteers and contractors and your fellow indie entrepreneurs (if any) and your capital investment includes all six of the capitals I’ve discussed in an earlier class.

I’m expecting your company’s projected profit will knock people’s socks off because you will be following my SSP business model. Huge profit (net gain) distributed as income.

There will be no payroll and your fellow indie entrepreneurs will be working for ROI (return on investment), not pay. Compensation will be based on net gain after expenses for you and your people.

Thus you will reveal how the SSP model reduces up-front financial costs (especially at startup) and puts a real value on human capital. People will show up on your budget as assets, not liabilities!

From your startup budget you can increase your projected numbers exponentially over three years as the company grows and its people with it.

Again, it’s speculative. Long-term projections based on strategic and marketing plans.

Startup Costs Worksheet Depends on Scope

Startup costs begin before you open the doors and will continue for at least the first year. Once established, costs should go down per unit and profits will go up for everyone in your organization.

Costs usually include payroll but if you are working solo then your only human capital cost will be for outside services.

If you are starting up with other indie entrepreneurs on your team, they will be listed as assets, not liabilities.

You should explain why there is no payroll.

Your financial costs will also depend on the scope of your startup. In my case, the Company of Ones is an ambitious project that has required more than $10,000 in cash and at least twice that value in human capital. And I’m still not ready to launch.

At the other end of the scale, you may be starting up from home and your financial needs may only be in the hundreds. Still, you might seek financial capital to broaden your reach regardless of your starting level.

If you are providing services, your startup costs will be lower than if you are developing a retail or manufacturing business.

In those cases you will most likely need more sizable up-front financial capital. Include specific amounts in your Worksheet and include the necessity of each expenditure. Regardless of whether you will be seeking outside investors, you will need this data in hand before you open your doors to avoid surprises.

Include Human Capital as Income

Now that you have a projected budget and a list of costs, you need to provide an Income Statement (often called Profit and Loss) showing where the money will come from. The total amount should match your Startup Costs Worksheet.

Here is where your financial statement will differ from all others.

You have no payroll because you have human capital. Therefore, you are now listing your people as assets, not liabilities. You will need to place a financial value on each of your indie entrepreneurs (including yourself) and count them as investment income.

I would not list what I’ve spent prior to launch as a debt. You will seek payback in the future budgets as an increased share of profits.

Break-Even Analysis: A Timeline

This is both an internal target and a message to a lender or investor predicting at what point income and expense will match and when profits can begin.

Remember, if you have indie entrepreneurs on your team, they will want to know when they can expect ROI from profit.

That would also include you, but I would delay drawing my share of profits until all my team members reach at least the minimum they would earn if receiving a paycheck. Write yourself an IOU and work it into to profit sharing as soon as you can.

If you can’t, you can’t, but I think it would go a long way in assuring your indie capitalists that your commitment to fair share is genuine. Remember, for most indie entrepreneurs, this is an adventure. They need to feel comfortable with this income arrangement as soon as possible.

Start with an Empty Balance Sheet

A balance sheet is a tracking device and there’s not much to track upon startup except the assets you’ve purchased or the amount you owe. The ideal is to owe nothing except to your investors who will expect ROI asap.

The best startup balance sheet has nothing on it. If not, try to keep it low.

It is quite possible under the SSP business model to begin without any weight on your back. All your commitments are forward and cash flow can balance your obligations out quickly.

I repeat. This is one of the most valuable benefits of SSP. You are well capitalized and ready to roll.

Statement of Capital Sources and Use

This is usually called Sources and Use of “Funds.”

I’m changing it here because our business plan incorporates all the Six Capitals the least important of which is financial capital.

Corporations often feature Sources and Use in their annual reports but you can use this statement as an explanation of how the Socially Responsible, Self-managed, Profit-sharing (SSP) business model enhances profits and boosts the local economy for the common good.

That last point will be an important message for socially responsible investors (SRI) from Main Street to Wall Street. You may not need investors at startup but, if you wish to grow, you might as well have the option open to you.

 (SRI) Resources for the Common Good

I’m usually negative on Wall Street, but there is a category of mutual fund investors you should know about.

Socially responsible investing, also called social investment, sustainable investment, socially conscious, “green” or ethical investing, is an investment strategy that seeks to achieve both a financial return and social/environmental good.

Recently, it has become known as “sustainable investing” aimed at the conscious creation of social impact through investing.

I am so committed to this movement that I have included an SRI professional as one of the top six “executive” positions in COWORK Entrepreneurs. When the company reaches startup, there will be one among us who connects our franchisees to SRI investors and SRI investors to companies using the SSC business model.

Meanwhile, it’s another DIY project for you. Check into SRI and learn how to connect to this type of investor. Keywords: “how to obtain sri investors.” You will find agents who can help you.

Make Sure It All Adds Up

In addition to editing, you need to make sure your numbers add up. Once again you need qualified friends or professionals to check your work.

Please share.

Please move on to the next essay
Tough Love and Good News

After Class Chat

Disclaimer. Once again I emphasize that I am not a professional financial advisor.

I’m guessing you aren’t either.

Even the simple is complex and therefore I strongly recommend that you engage a local independent CPA (certified public accountant) or attorney to assist you in developing your financial plan. He or she may be someone you currently use.

The cost will likely be a few hundred dollars. Money well spent.

In either case you need to engage someone who is open to an alternative business plan. Explain how the SSP business model works, especially in regard to the individual ownership of work and profit distribution instead of pay.

Those professionals who are firmly planted in the “old school” are not for you.


Not My EconomicsFinancials Made Simpler