Key Considerations of the Sources and Uses of Funds Statements

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Writing a business plan?
August 26, 2022

The source and uses of funds statement explain where a company’s money came from and how the organization has put it to use in the past and how they will use the funds in the future. It contains the cash inflows into the company, the cash received, the cash outflows from the company, or the money spent.

So, what purpose does it serve?

Mostly, lenders will ask for these statements when you apply for a business loan. It will also help your investors understand where the funds have been used.

If your sources and uses of funds statement are accurately prepared, it can communicate well with the readers, and hence, it is quite crucial to prepare a compelling sources and uses of funds statement.

This article explains the sources and uses of funds statements and the step in creating the statements with examples.

These statements are widely used for

The Sources and Uses of Funds have two parts,

  • The first part is the sources from which the company gets its funds, and
  • The second part is the uses, application, or spending of the money.

Let’s understand both sections of the statement in detail.

Uses of Funds

Uses of Funds

Often called ‘the application of funds, uses of funds reflect how an organization used the money it received from various sources. The uses of funds can also be understood as the cash outflow since it is the money spent for various activities performed to achieve the organizational goals.

It generally consists of the following components:

  • Money Required for Operational Activities

    Organizations will need cash and working capital to run the business and perform day-to-day activities.

  • Opening Quantities of Supplies, Equipment, and Furniture

    The opening balance of the supplies, equipment, and furniture tells us where the organization has already spent its money.

  • Purchase of Land and Building

    The amount spent on acquiring land and building for business use is a huge capital expense and results in cash outflow.

  • Initial Startup Costs

    These costs Include rent, deposits paid for the rented building/apartment, machinery acquisition costs, initial payments for insurance, company setup costs, etc.

  • Other Working Capital Needs

    These include other operating costs such as the rental expenses of the leased machinery, repairs and maintenance expenses, outsourcing costs, etc.

Sources of Funds

Sources of Funds

Businesses need capital or funding to run the operations and when the new business is set up, it requires sufficient funding to incur initial start-up costs. Hence, the sources of funds also include the money your investors have given to you.

Below are the other elements of the sources of the funds for most businesses.

  • Owner Contributions

    Owners of the businesses bring specific amounts of capital to start the company and they also contribute more capital as and when needed from time to time.

  • Sales of Stock

    It includes the sale of finished goods and any other inventory that will not be used by the company.

  • Sales of Assets

    The assets that the companies sell due to discontinuance of some of the operations or assets becoming non-operatable are another source of funds.

  • Cash Income

    Any other cash income generated from the sale is also considered one of the sources of funds.

Steps to Create the Sources and Uses of Funds Statement

One of the essential tasks of an organization in preparing the financial statements of the company would be to prepare the sources and uses of funds statement. It is because the statement reflects the efficiency of the business in depicting how effectively funds were utilized from the available sources.

The uses of funds section is prepared first, and then the sources of funds.

Let’s learn how to prepare the uses of funds section of the sources and uses of the funds statement.

Steps to Create Uses of Funds

  1. Note down all the costs included in the uses of funds, such as plant and machinery, initial startup costs, suppliers and marketing expenses, and other working capital costs.
  2. Add all the numbers and make a total to name ‘total of startup costs’ as shown in the example below.
  3. Once you have added all the uses of funds costs, write an estimate of
    • The capital costs required for purchasing the buildings, machinery, and vehicles and
    • The working capital requirements to fund day-to-day operations.
While generating the uses of funds statement, focus on all the needs for the smooth and profitable functioning of the business rather than on the sources of funds.

Steps to Create Sources of Funds

This section lists all the sources of funds depicting from where the money has come to fund the business.

  1. List the contributions received from the owners and the investors.
  2. Write the security that you offer for the loan you wish to secure.
  3. Any other sources of funds that you can use to fund the business in case you cannot pay the loan.
It is also advisable to include all details concerning the contribution particulars.

Sample Sources and Uses of Funds Statement

While preparing the statement for sources and uses of funds, please note it has to be simple, and easy to understand. If you complicate the statement by adding difficult terms or complex numbers, readers may misinterpret the statement and you may lose a potential investor or a bank loan.

Statement of Sources and Uses of Funds:

Uses of Funds
Amount (USD)
Sources of Funds 
Amount (USD)
Plant and Machinery Costs 112,000 Owners’ Contributions 5,54,000
Facilities Costs 543,000 Collateral 67,000
Suppliers and Marketing Costs 90,600 Home Equity 31,000
Other Startup Costs  78,000 Sale of Stocks 198,400
Total Startup Costs 823,600 Total Sources of Funds 8,51,000
Working Capital Required 250,000 Total to be Financed 222,600
Total Uses of Funds 10,73,600 Total Sources of Funds 10,73,600
Prepare comprehensive notes where you think you need to provide more details. For example, plant and machinery costs can be detailed in a separate note to include opening balance, purchases during the year, and depreciation expenses.

The Bottom Line

As you grow your business, you may need more funds to meet the business expansion costs, and hence, it is important not only the startup companies but the well-established businesses as well to craft a compelling statement of sources and uses of funds.

How Can We Help?

We can help you prepare the statement of sources and uses of funds faster and more accurate along with other reports such as financial statements, ratio analysis to help you better understand the financial position of your company

Request your free demo at Upmetrics, to input only the minimum elements so that we can compute it for you.

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Rudri Mehta
Rudri Mehta
Rudri is a passionate financial content writer and a Chartered Accountant by profession. She enjoys sharing knowledge through her writing skills in finance, investments, banking, and taxation while also exploring graphic designing for her own content.

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