Historical Financial Statements

• Start-up private companies that are not yet selling products or services do not have historical financial information to provide investors, but established companies seeking capital for expansion prepare a detailed package of historical financials for investors to review. The package includes profit and loss statements, balance sheets and cash flow statements. Investors require these statements so they can analyze the growth rate of the company's sales, which is used as a basis to project future sales. They also analyze expenditures to determine whether the company is being operated efficiently.
  
  

Business Plan

• A private company's management team prepares a document called a business plan to present to prospective investors. The plan shows what milestones the company has already reached --- such as product development, or assembling the management team --- and what it hopes to accomplish after receiving the investment capital. Investors require detailed financial projections in the plan for at least the next three years, and usually for the next five. Investors carefully review the projections to determine whether they are reasonable and achievable. The business plan projections are also used by investors to forecast the rate of return they will earn on the investment.
  
  

Capital Budget

• Investors in private companies require a detailed outline of how much money the company is asking for --- in other words, how their money will be spent. They also want to know how quickly it will be spent, sometimes referred to by venture capitalists as the "burn rate" for the capital. One of the important determinations they have to make is whether the company is asking for enough capital to accomplish all the goals set forth in the business plan.
  
  

Post-Investment Financial Information

• In order to closely monitor the company's progress, private company investors require periodic updates through financial reports. These are prepared by company management at least quarterly, but often monthly. Investors are particularly interested in whether sales results are on target and how the cash flow for the company looks compared to what was in the business plan's financial projections. Significant variances require explanations from the management team. Investors usually go over the financial reports with the management team by phone or through in-person meetings if the investors are located near the company.
  
  

Reporting Requirements for Public Companies

• Companies whose shares are available for purchase by the public are required by the Securities and Exchange Commission, or SEC, to prepare and file a specially formatted financial report called a 10K, made available for the company's shareholders to review. Corporations also send shareholders an annual report that includes financial information, along with descriptive information about the company's performance and accomplishments, its products and its management team. Companies preparing to offer shares to the public are required to file a document called a prospectus, which contains financial information and descriptive material about the business that individuals can use to determine whether they want to buy stock shares in the company.