Four Tips for Getting Your Financial House in Order

Focusing on financial projections is one of the most important steps you can take as you prepare to create a business plan. Your plan’s financial component provides the roadmap for ensuring your business activities are on target. But just as critical, the financial information you include in your report will show prospective lenders and investors that your business is built on a strong foundation.

Here are four tips to help you effectively prepare for this stage of writing your business plan:

1. Engage the help of an expert. Unless you have a background in finance, contact a trusted banker, accountant or professional business consultant to help you gather necessary data as well as the financial documents you will need.

Your financial consultant will also be invaluable in reviewing your plan and testing your assumptions. They can provide feedback and suggestions that ensure you provide enough detail based on relevant, well-researched information.

2. Define your assumptions. Before you will be able to make any financial projections, you will need to give some thought to how you are going to come up with your numbers.

Lenders and investors are likely to ask some tough questions about your projections for profit and loss, cash flow, break-even analysis and your projected balance sheet. You want to be able to back up your numbers with documented research, and not have to tell them you relied on your “best guess.” Be prepared to explain any forecasts, documents, or other data you relied on to formulate your projections.

Be prepared to explain your process for coming up with everything from estimated utility costs to advertising expenses.

3. Value your assets. The financial portion of your business plan should include a projected balance sheet covering your first year of business. Before you embark on your actual plan, take an inventory of your fixed assets. These are all the long-term assets that are not easily converted into cash. Values for your fixed assets will be incorporated into a projected balance sheet for your first year of operation as you go through the business planning process.

You will also be estimating your current and other assets, along with liabilities and equity.

4. Evaluate funding needs. Fine-tune your estimated needs for funding. In addition to letting prospective lenders and investors know what assumptions you used in making your financial projections, be prepared to show that your funding request matches up with your business financial projections.

A request that appears out of line with your best financial projections is a red flag to funding gatekeepers, and brings into question your motives and the overall validity of your proposed business.

Following these tips will put you in excellent position for developing your financial projections as part of your overall business plan. Be prepared to pull together a short overall analysis of your financial information.

You might even consider incorporating some infographics to help clearly convey the financial side of your business.

Why Financial Preparation Matters Before a Transaction

The four principles above apply broadly to business planning, but they take on heightened importance when a company is preparing for a capital raise, a sale process, or a debt financing event. Lenders and institutional investors conduct detailed reviews of financial statements, and any inconsistency between projected and historical results will generate questions that slow diligence and erode credibility.

A company considering a capital raise should treat its financial preparation as a parallel track to its go-to-market strategy. The capital raise preparation workflow is designed to help management teams organize the financial documentation, assumptions, and narratives that sophisticated investors expect. Similarly, sellers preparing for an exit benefit from the same discipline — clean books, defensible projections, and a clear asset inventory are foundational to any credible sell-side process.

Building a Financial Model That Holds Up to Scrutiny

One of the most common mistakes in financial preparation is presenting projections that are too aggressive without a clear operational logic to support them. A well-constructed financial model does not just show revenue growth — it explains what drives that growth. Each line item should trace back to a business assumption: a specific number of new sales hires, a targeted customer acquisition cost, a planned capacity expansion, or a documented price increase.

This level of granularity matters because sophisticated reviewers — whether lenders, investors, or acquirers — will stress-test the model. They want to understand what happens to profitability if revenue comes in 20% below plan, or if a key cost category escalates unexpectedly. A model that can answer those questions calmly, with clearly labeled assumptions, signals a management team that understands its own business. The related discussion on ensuring the pitchbook’s financial projections are pitch-perfect offers practical guidance on how to structure these materials for maximum effect.

For companies that have already completed financial preparation and are ready to proceed, the next step is understanding how the process fits into a broader transaction framework. The piece on planning your liquidity event and the four groups to consult before selling provides a useful sequencing guide for the advisory team assembly that should accompany a well-prepared financial package.

Aligning Financial Readiness with Investor Expectations

Beyond the numbers themselves, investors and lenders evaluate financial materials for signs of management quality. Poorly organized records, unexplained gaps between periods, or inconsistent accounting treatments all create doubt about operational discipline. Companies that invest in financial housekeeping before entering any transaction process — including straightening out chart-of-accounts inconsistencies, reconciling intercompany transactions, and documenting any non-recurring items — typically experience smoother diligence and fewer last-minute renegotiations.

If you are in the early stages of financial preparation and want to understand how your materials will hold up to professional review, preparing a transaction overview is a practical first step to identify any gaps before they become issues with buyers or lenders.

Frequently Asked Questions

How far in advance should a business owner begin getting finances in order before a sale?

Most advisers recommend beginning financial cleanup at least 12 to 24 months before a planned transaction. This provides enough time to address any accounting irregularities, build a track record of clean financials, and implement any operational improvements that will be reflected in the trailing results buyers will review.

What financial documents are most commonly requested during diligence?

Buyers and lenders typically request three years of income statements, balance sheets, and cash flow statements, often audited or reviewed by an independent accounting firm. They also request aging accounts receivable, customer concentration schedules, capital expenditure histories, and a list of all material contracts.

Is a quality of earnings report the same as an audit?

No. An audit validates that financial statements conform to accounting standards. A quality of earnings report, conducted by a transaction advisory firm, assesses the sustainability and repeatability of reported earnings — identifying one-time items, accounting policy choices, and working capital trends that affect the “true” economic earnings available to a buyer.