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By Cynthia McCahon, Feb. 17, 2012, originally on the SCORE blog.

In the first article in this series on How To Obtain Business Financing, we discussed how you can prepare for finding financing for your company.  In the second, we discussed the types of business financing that are available and the paperwork you’ll need for loan applications. This third article in the series discusses creating financial forecasts for your business and understanding the importance of cash flow forecasts.

Preparing Financial Forecasts for a Business
In preparing for funding, you’re forced to dive into the nitty gritty financial details of your business. That’s a good thing, because the most important part of preparing for financing is fully understanding your company’s financial forecasts to the point that you’re comfortable explaining them to a loan underwriter.

Financial forecasts include three basic reports that you’ll need to create:

• Profit & Loss forecast
• Cash Flow forecast
• Balance Sheet forecast

The most important report is the Cash Flow forecast because you’ll need to know how much cash your business will need before you begin looking for financing. Also, a loan underwriter will likely require a cash flow forecast as part of the loan application process. What your banker really wants to know is whether you understand how to correctly forecast cash flow for a business—and if you’ll be able to repay a loan obligation.

Read the rest of this article at the SCORE blog.