Financial statements are the cornerstone of any funding application. They tell funders whether your business is viable, how you manage money, and whether you can repay a loan or achieve grant objectives. This guide explains what financial documents South African funders require and how to prepare them.
Key Insight: Different funders require different levels of financial documentation. Start-up grants may accept projections, while large loans require 3 years of audited statements.
Why Financial Statements Matter
Funders use your financial statements to assess:
- Viability: Is your business generating revenue and managing costs?
- Growth trajectory: Are revenues increasing or declining?
- Financial health: Do you have positive cash flow and manageable debt?
- Management capability: Are your records accurate and well-organized?
Start-ups: If you don't have historical financials, focus on detailed projections with clear assumptions. Funders understand new businesses won't have 3 years of audited accounts.
Types of Financial Statements
Annual Financial Statements (AFS)
Most CommonYearly
What's Included
- Statement of Financial Position (Balance Sheet)
- Statement of Comprehensive Income (Income Statement/P&L)
- Statement of Changes in Equity
- Statement of Cash Flows
- Notes to the Financial Statements
- Directors' Report (if required)
When Required
Most funders require AFS for the past 2-3 years for established businesses. These are prepared after your financial year-end.
Management Accounts
Monthly/QuarterlyInternal Use
What's Included
- Monthly/quarterly income statement
- Monthly/quarterly balance sheet
- Cash flow summary
- Variance analysis (actual vs budget)
- Key performance indicators (KPIs)
When Required
Funders often request the most recent 6-12 months of management accounts to see current performance between annual statements.
Financial Projections
Future Looking3-5 Years
What's Included
- Projected income statement (monthly Year 1, annual Years 2-5)
- Projected cash flow (critical for funders)
- Projected balance sheet
- Key assumptions documented
- Break-even analysis
- Sensitivity analysis (best/worst case)
When Required
Essential for all funding applications, especially for new businesses and expansion funding. Funders want to see how the funding will be used.
Bank Statements
Always Required6-12 Months
What Funders Look For
- Regular income deposits (shows trading activity)
- Average monthly balance (cash reserves)
- Payment patterns (are you paying suppliers?)
- Loan repayments (existing debt service)
- No dishonoured payments or returned debits
Requirements
Most funders require 6 months of stamped bank statements. Some require 12 months. Must be from your business account, not personal.
Requirements by Funder
SEDFA Requirements
| Loan Amount | Financial Requirements |
|---|---|
| Under R500,000 | 6 months bank statements, latest management accounts |
| R500,000 - R1m | 12 months bank statements, 2 years AFS (compiled acceptable) |
| Over R1m | 12 months bank statements, 3 years AFS (reviewed preferred) |
| All amounts | 3-year financial projections with monthly cash flow |
IDC Requirements
| Funding Type | Financial Requirements |
|---|---|
| Small Business Finance | 3 years audited/reviewed AFS, 5-year projections |
| Large Projects | 3 years audited AFS, detailed financial model, independent verification |
| Start-ups (Gro-E) | 5-year projections, business plan financials, personal statements of directors |
NEF Requirements
| Programme | Financial Requirements |
|---|---|
| Entrepreneurship Finance | 3-year projections, 6 months bank statements, latest AFS if trading |
| Corporate Finance | 3 years audited AFS, financial model, vendor due diligence |
| All programmes | Personal financial statements of all shareholders |
DTIC Incentives Requirements
| Incentive | Financial Requirements |
|---|---|
| Black Industrialist | 3 years audited AFS, 5-year financial model, ownership structure proof |
| MCEP | Latest audited AFS, projected costs and savings |
| Export Marketing (EMIA) | Latest AFS, export revenue breakdown, cost quotations |
Preparation Standards
IFRS for SMEs
South African companies should prepare financial statements in accordance with:
- IFRS for SMEs: Simplified international standards for smaller entities
- Full IFRS: Required for public interest entities and large companies
- SAIPA guidelines: For micro enterprises with turnover under R1 million
Accounting Officer Reports
Close Corporations (CCs) with turnover under R25 million may have statements prepared by an Accounting Officer (instead of an auditor). This provides:
- Lower cost than full audits
- Acceptable to most funders for smaller loan amounts
- Some funders (IDC, NEF for larger amounts) may require reviewed or audited statements
Audited vs Reviewed vs Compiled
| Type | Level of Assurance | Cost (Estimate) | When Required |
|---|---|---|---|
| Audited | Highest - independent verification | R15,000 - R100,000+ | Large loans (R5m+), IDC, public companies |
| Independently Reviewed | Moderate - analytical procedures | R8,000 - R40,000 | Mid-size loans, NEF, some DTIC incentives |
| Compiled | Limited - based on info provided | R3,000 - R15,000 | Small loans, SEDFA under R1m, grants |
| Accounting Officer Report | Limited - CCs only | R2,000 - R8,000 | Close Corporations under R25m turnover |
Cost-Saving Tip: Check the funder's requirements before paying for an audit. Many SME programmes accept compiled or reviewed statements, which cost significantly less.
What Funders Look For
- Revenue growth: Increasing sales year-on-year
- Gross profit margin: Typically 20-40%+ depending on industry
- Positive cash flow: Cash generated from operations
- Debt-to-equity ratio: Not over-leveraged
- Current ratio: Above 1.0 (can pay short-term obligations)
- Clean bank statements: No bounced payments or unauthorised overdrafts
Common Issues and How to Fix Them
| Issue | Impact | Solution |
|---|---|---|
| Mixing personal and business finances | Unclear picture of business performance | Open dedicated business account, separate all transactions |
| Outdated financial statements | Application rejected or delayed | Prepare management accounts for recent months |
| Inconsistencies between documents | Raises red flags, additional queries | Reconcile all documents, explain variances |
| Missing notes/assumptions | Projections seem unrealistic | Document all assumptions with market data |
| Unrealistic projections | Credibility questioned | Base on historical data, industry benchmarks |
| Negative equity (accumulated losses) | Solvency concerns | Inject capital, restructure, explain recovery plan |
Getting Professional Help
If your internal capacity is limited, consider engaging:
- Chartered Accountant (CA): For audits and complex reporting
- Professional Accountant (SAIPA): For compiled statements and projections
- Bookkeeper: For management accounts and record-keeping
SEDFA Vouchers: You may be able to use SEDFA Business Development Vouchers to pay for financial statement preparation. Check eligibility at your local SEDFA branch.
Tips for Success
- Start early: Audits and reviews take 2-4 weeks minimum
- Keep records current: Monthly bookkeeping prevents year-end scrambles
- Check requirements first: Don't pay for an audit if compiled is acceptable
- Explain variances: If numbers changed significantly, explain why
- Use accounting software: Xero, Sage, QuickBooks make reporting easier
Next Steps
Need Help Preparing Financial Statements?
Get quotes from verified accountants who can help with annual financial statements, management accounts, and financial projections for funding applications.
- Business plan development
- Financial projections
- Funding application support
- Pitch deck preparation