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For many businesses, however, thin margins are just part of the territory. Where they can undermine a small business is when projected operating margins are thin because of a low-cost pricing strategy. If the underlying assumption is that profits come with volume the question becomes, does the organization have the skill to generate the required volume?

More important, what kind of cash is going to get eaten in inventory purchases (if there are any) and in carrying a large balance of accounts receivable that come part and parcel with a large sales volume? You have to question the wisdom of an entrepreneur who is using a low-cost approach because it’s not really dependable or maintainable on an ongoing basis without becoming costly to the business.

A complete financial forecast includes projected income statements, cash flow statements, and balance sheets. Conventional wisdom says that if the projected income statement is right, everything else will fall into place. But the flip side is that if the projected income statement is off, it’s unlikely financing will ever get off the ground.

This has been a brief overview of what investors look at in your financial statements. To be fully prepared get my book "How To Prepare and Present A Successful Business Funding Request" at BusinessFinance.com. It will give you very clear specifics on the creation of your financial projections.

 


 

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