When pitching your business to potential investors, a working product and great idea can go a long way, but a well-built pitch deck can take you even further. Building a pitch deck can seem like a daunting task, but it doesn’t have to be.
In this article, we’ll look at what financial statements you should include in your pitch deck and how to put them together.
Start with an assumptions sheet
When it comes to including financial statements in a pitch deck, the best place to start is with an assumptions sheet. Typically, a pitch deck is used to acquire funding for a project or business idea. Often, starting businesses may not have fully-developed metrics to work with yet. As a result, you’ll need to make assumptions about your business’s future.
This is where the assumptions sheet comes into play. The assumptions sheet is a document that outlines all of the assumptions that you made when building your business’ financial model. You should include both quantitative assumptions (like expected sales) and qualitative assumptions (like expectations of being approved for a loan or where your business will be located).
An assumptions sheet is a significant part of a pitch deck because it gives investors a clear guide to the assumptions you’ve made when developing your business. It can also give them an idea of how the model might change if assumptions are modified.
An important aspect of the assumptions sheet is to be cautious about your assumptions. Many entrepreneurs will assume that their company can raise capital at will, but unfortunately, this is not usually the case.
Startups in their early stages are often debt-heavy due to equity investments, loans, and borrowing to fund themselves. Startups also tend not to scale well and can suffer from an inability to grow quickly. Assuming you can balloon from one store to five in a short period may be a faulty assumption to make. Keeping your assumptions realistic can help make your model more reliable and easier to find investors.
Be sure to include a balance sheet. A balance sheet is a type of financial statement, usually used by accountants, that provides a snapshot of your company’s finances at a specific moment in time. Balance sheets operate using an important accounting equation:
Assets = Liabilities + Shareholders’ Equity
In essence, a company’s assets should equal the amount of liabilities plus the amount of equity contributed by shareholders. Assets include things like cash, inventory, and property. Assets can even include things like cryptocurrency and NFTs. Whichever digital assets your company holds, make sure these are stored in a secured and user-friendly wallet as opposed to the exchange where you bought them. Keeping your assets in the exchange is convenient, but a dedicated crypto wallet offers safety and security that no trading platform can.
Liabilities include rent, wages, utilities, taxes, and loans. Shareholders’ equity is money that is attributable to the owners of the business or its shareholders. Another portion of shareholders’ equity includes retained earnings. Retained earnings are excess profits returned to the business that can either be distributed to owners or shareholders or reinvested in the business to buy more assets.
A balance sheet is important for businesses of all sizes. Accountants, financial analysts, investors, and business managers all use balance sheets in their day-to-day work. A balance sheet can help illustrate the level of risk a company has.
By analyzing a balance sheet, investors can assess your startup’s financial health and determine whether or not it will be profitable, both in the long and the short run. A balance sheet can’t tell you everything, though; that’s why they are only one piece of a well-structured pitch deck.
Show investors your income statement
The next financial document you need to include is an income statement. An income statement is related to your balance sheet, but rather than focusing on assets, liabilities, and equity, it focuses on calculating the net income of your business. Along with the balance sheet, your income statement is one of the most important major financial statements that illustrates your company’s financial stability.
Like a balance sheet, the income statement is also governed by an important accounting formula:
Net Income = (Total Revenue + Gains) - (Total Expenses + Losses)
Importantly, revenue is not the same as the receipts you take in (cash received). Revenues usually come from selling products or services. Gains, sometimes called other income, are any net money made from activities unrelated to your primary business activity. For example, your company might sell a used delivery vehicle. The proceeds from that sale would be marked under other income or gains.
Expenses are the costs associated with running your business. These usually include the cost of goods sold (COGS), business expenses, depreciation costs, and wages. On the other hand, losses are a catch-all like other income - these are for one-off or unusual costs. For example, if your delivery vehicle was in a fender-bender and you had to pay the costs of a lawsuit, that would be categorized under losses.
Provide a statement of cash flows
The third financial statement to include in your pitch deck is the statement of cash flows. It is potentially the most significant financial statement you can include when putting together a pitch.
This financial statement shows investors the net cash and cash equivalents being brought into and exiting the company. Among financial statements, many small business owners agree that the statement of cash flows is one of the most important documents a business can leverage. After all, if the business isn’t generating cash flows, it probably isn’t doing very well.
Cash flows differ from revenues because revenues refer to income earned from selling goods or services. Businesses often sell goods on credit or using invoices, which are then accounted for as receivables outstanding. A statement of cash flows, thus, provides investors with an inside peek at how much money is actually coming in.
For example, a business may have revenues of $15,000 after delivering bagels for the month of July. But because they fail to collect on all those receivables before August, their cash flows may only be $5,000. As a result, the business still has $15,000 worth of assets ($5,000 in cash and $10,000 in receivables), but the receivables have not been transformed into cash yet.
This could mean the business will be unable to cover all of its cash outflows, like wages, debt payments, etc. One way businesses can avoid these problems is by using text-to-pay services. A text-to-pay service essentially acts as a payment reminder, allowing companies to get their invoices paid straight through texts.
As you can see, a statement of cash flows can reveal a lot about a business, which is why it is essential to include it in your pitch deck!
Include a statement of shareholders’ equity
The final statement you should include in your pitch deck is a statement of shareholders’ equity. Shareholder equity, abbreviated as SE, is the company’s total net worth to be returned to owners or shareholders after all of the company’s debts are satisfied. Shareholder equity equals the company’s total assets minus total liabilities.
Shareholder equity is another way to measure the financial health of your company:
When it is positive, your company’s assets exceed your liabilities.
If shareholder equity is negative, it means you have too many liabilities, and if the firm were to close, there would not be enough assets to cover the total liabilities.
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Kiara Taylor is a financial writer and Research Analyst. She is an expert at risk-based modeling having worked in the finance vertical for the past twenty years. She has a Master's Degree in Finance from Ohio State and has worked at Fifth Third Bank, J.P. Morgan, and Citi in emerging markets and equity research.