How to Create a Sources and Uses of Funds Statement
Large public companies include a Sources and Uses of Funds statement in their annual reports, but even small businesses can find sources and uses statement helpful. The worksheet discussed here is a simplified, slightly different version that you can use to show a lender how much you need for startup financing and how much collateral you will contribute.
Lenders like the Sources and Uses statement because it is an excellent summary of your financial plans, showing where the money you need is coming from and what it will be used for.
Putting together a Sources and Uses statement is also a good way to strategize on creative ways to finance your business startup or expansion.
The Sources and Uses of Funds Statement
As you can tell from its title, a Sources, and Uses of Funds statement shows the reader the information needed to get the "big picture" of:
Uses of Funds: The money needed for various purposes for business startup, including
beginning quantities of supplies, equipment, and furniture needed the purchase of
building/land or costs of deposits for rent, and other startup costs. If your business is considering expansion, the "uses" part of the statement would show the build-out or improvements you will need, and additional capital assets you will need to buy.
Sources of Funds: Where the money for all funding is going to come from. You will probably have a mix of different funds for different parts of your plan. For example, you may be contributing office furniture yourself, getting a loan for purchasing major equipment, and getting a line of credit for working capital.
Steps in Creating a Sources and Uses of Funds Statement
The format of the Sources and Uses document seems backward: First, the uses of funds are described, then the sources, as if you were talking to a lender about your plans.
- Section One is "Uses of Funds." In this section, use the subtotals for each section in your Startup Costs Worksheet: Facilities, Equipment and Vehicles, Supplies and Advertising, and Other Startup Costs. Total these numbers.
- In the Uses of Funds section, include an estimate of your Working Capital needs--that is, the amount of money you need to have on hand to pay bills while you are establishing your business.
- The total of startup funds and working capital needs is the total Uses of Funds.
- In the Sources of Funds section, list all the sources of funds you can provide yourself, such as collateral for the loan you are seeking. This might include equity in your home, a savings account, or an IRA (you don't have to cash it in, just be willing to let the bank take it if you can't pay on your loan).
- The difference between the total Uses of Funds from section one and the total collateral you are providing equals the amount of financing needed.
Sample Sources and Uses of Funds Statement
Uses of Funds:
Facilities Costs $120,000
Equipment and Vehicles $325,000
Supplies and Advertising $49,000
Other Startup Costs $13,000
Total Startup Costs $507,000
Working Capital Required $100,000
Total Uses of Funds $607,000
Sources of Funds:
Owner Savings $10,000
Home Equity $30,000
Total Collateral $90,000
Total to be Financed $517,000
Total Sources of Cash $607,000
This statement does not have to be complicated; it is just meant to show a lender how much you need for financing, what you have as collateral and the amount of loan you need. In some cases, you may not actually be putting the money into the business (if you have an IRA, for example); you are just showing the bank what you can do if you are in trouble on the loan.
Creating Your Sources and Uses of Funds Statement
As you work on putting together this statement, you might want to be creative to find more funding sources. For example, you could do a crowdsourcing campaign (like Kickstarter) for a new product, or find an SBA loan guarantee to help you secure that loan.
Don't forget to include the costs of obtaining these funding sources in your uses of funds section.
Be as accurate and complete as you can be when preparing your Uses of Funds section. Leave no question unanswered. Lenders don't like surprises.