What are the best practices for preparing and presenting your financial statements to your lender?

1 Know your lender's requirements

Different lenders may have different expectations and preferences for the format, frequency, and level of detail of your financial statements. Some may require audited or reviewed statements, while others may accept compiled or internal statements. Some may want monthly or quarterly reports, while others may only need annual reports. Some may ask for specific ratios, metrics, or projections, while others may focus on the overall trends and performance. To avoid surprises and delays, you should communicate with your lender and understand their requirements before you prepare and present your financial statements.

2 Use a consistent and reliable accounting system

Your financial statements should be based on a consistent and reliable accounting system that follows generally accepted accounting principles (GAAP) or other relevant standards. Your accounting system should be able to capture, record, and report all your financial transactions accurately and completely. You should also have adequate internal controls and policies to prevent errors, fraud, or misstatements. Your accounting system should also allow you to generate and customize financial statements easily and quickly, as well as to provide supporting documents and schedules if needed.

3 Highlight your strengths and explain your weaknesses

Your financial statements should not only show the numbers, but also tell the story of your business. You should highlight your strengths and achievements, such as increasing revenues, improving margins, reducing debt, or generating positive cash flow. You should also explain your weaknesses and challenges, such as declining sales, rising costs, or cash flow issues. You should provide context and reasons for any significant changes or variances in your financial statements, and show how you are addressing or resolving them. You should also be honest and transparent about any potential risks or uncertainties that may affect your future performance or repayment ability.

4 Prepare a summary and an analysis

Your lender may not have the time or the expertise to review your financial statements in detail, so you should prepare a summary and an analysis that highlights the key points and insights. Your summary should provide a brief overview of your financial statements, such as the income statement, balance sheet, and cash flow statement. Your analysis should provide a deeper understanding of your financial statements, such as the profitability, liquidity, solvency, efficiency, and growth ratios. You should also compare your actual results with your budget or forecast, and explain any deviations or gaps.

5 Present your financial statements professionally and clearly

Your financial statements should be presented professionally and clearly, using a format and a language that your lender can understand and appreciate. You should use tables, charts, graphs, or other visual aids to make your financial statements easier to read and interpret. You should also use headings, subheadings, bullet points, or other organizational tools to structure your financial statements logically and coherently. You should also use clear and concise language to explain your financial statements, avoiding jargon, acronyms, or technical terms that may confuse or mislead your lender.

6 Follow up and maintain communication

Your financial statements are not a one-time event, but a part of an ongoing dialogue with your lender. You should follow up and maintain communication with your lender after you present your financial statements, and address any questions, concerns, or feedback they may have. You should also update your lender on any changes or developments that may affect your financial statements or your business performance. You should also anticipate and meet your lender's deadlines and expectations for future financial statements, and notify them in advance if you foresee any delays or difficulties.