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A personal financial statement is a form or spreadsheet detailing a person's financial state at a certain point in time. This statement is typically used to demonstrate a party's credit worthiness or financial stability. This can allow them to get financing or loans, such as an auto loan, credit cards, or mortgage. It is similar to a credit report.
The personal financial statement form will include personal information about the party, including full name, address, and an identification number. A complete list of their assets and liabilities will also be included, in order to give the recipient a clear look at the party's financial state. Current debts will be used to determine credit worthiness, as well as the amount of regular income.
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A “financial statement” is essentially a snapshot of a business’ or individual’s financial status at a particular moment in time. The purpose is to show a potential source of credit, either an investor or loan provider, that you are worth their time and money. The personal financial statement you draw up sums up YOUR financial position.
Who creates them?
Often, an aspiring entrepreneur draws up a personal financial statement for the purposes of trying to get a loan or win over an investor. The more circumspect or organized of starters-up will also create one in order to track their expenses or see how their business works on the financial level.
Is there a difference between a personal financial statement and other financial statements?
Yes. Once a business is up and running, it becomes enough of an entity to merit its own financial statement. An established business entity will have its own assets and liabilities, and will have enough history to create a profit & loss (P&L) statement. However, when a business is just starting out, it has no financial history and therefore nothing to make a statement about. Investors and creditors only have the financial integrity of the entrepreneur to go on. Therefore, until your business has seen enough success to have a financial identity of its own, you will be issuing personal financial statements.
What kind of information needs to go into a Personal Financial Statement?
A personal financial statement should contain the following basic elements:
Personal information – This means your full legal name, address, telephone number, what size pants you wear and the name of your favorite childhood pet. (Just kidding about those last two.)
A balance sheet, or “statement of financial position” – This is where you list your assets and liabilities and calculate your “net worth” by subtracting the latter from the former. You’ll need to do a bit of research in order to fill this out, as you will need to have any valuable property appraised and check the status of all your unpaid debts . Be sure that you check your math three or four times. I’m not kidding. The whole point of the personal financial statement is that it is accurate. If you provide a potential investor or creditor with inaccurate numbers, they are highly unlikely to help you.
Notes – This is essentially an appendix in which you provide details about each of the assets and liabilities listed above. This is also the place to describe any miscellaneous liabilities or personal income.
What’s the easiest way to create a personal financial statement? Do I need to hire a professional?
Some people hire an accountant to draw up and review their personal financial statements for them. However, this is an expensive option, especially for entrepreneurs who are just starting out. The smartest thing to do is to either fill out a free personal financial statement template (there are tons of these on the internet) or to download a sample personal financial statement and build your own based on that example. Either of these is cheaper and quicker than hiring a profession, and for something as simple as a personal financial statement, templates or sample personal financial statements work just fine.
A personal financial statement form, or PSF, involves fewer legal hitches than a corporate document. However, it is still not a document to treat cavalierly. Below I’ve listed the three main legal issues a personal financial statement can raise.
The perils of dishonesty
Truth-fudging is a disgraceful but popular habit. We’ve all gotten away with it at some point, whether it’s exaggerating our gross monthly income on a rental application or having a friend pose as a professional reference on a resume. Little white lies are an easy and often harmless way to make getting by a bit easier. However, a PSF is not the place for them.
Honesty is a big, big deal to people who dispense loans and credit. After all, these entities want to know that they’re going to see their money back. Therefore, being trustworthy is more important than looking perfect. Even if your credit history isn’t the best, it’s worth coming clean about it on your form. It may make you look less appealing in the short-term, but it’s a whole lot safer in the long term. Plus, it’s really easy to go too far with the dishonesty thing, which can put you at severe risk for…
Take it from us - creditors love to pick on the little guys. It’s easier for them. If anything looks suspicious on your statement, you stand a chance of being audited. This holds everything up and usually ends up costing you money. Be honest and do not risk it.
The disproportionately heavy consequences of typos, misspellings, or misplacements
It may seem unfair, but the point of a PSF’s final clause is to verify the validity of its information. False information is false information, whether you’ve put the wrong name by anxiously omitting a letter or listed your assets where your liabilities should go. To a human eye, it may be an obvious mistake, and any compassionate person might think better of penalizing you for it. However, it’s unwise to look for compassion in the eyes of a creditor.
Make enough for everyone!
According to the Small Business Administration’s guidelines, personal financial statements must be completed for every proprietor, every general partner, every limited partner who owns at least 20% interest, every stockholder holding at least 20% of voting stock, and every loan guarantor. Drawing up personal financial statements for each of these parties may seem like a chore, but it’s a whole lot easier if you use a blank personal financial statement, which can easily be found for free online. That way you can use a template and power through, while ensuring all your personal financial statements have the same format.
A personal financial statement, or “PSF,” is a document that sums up your current financial status. It is normally used when applying for a loan, a mortgage or other line of credit. It’s basically a succinct and efficient way to introduce yourself to credit officers and justify your request.
A typical PSF consists of a few basic components. I’ve broken these down below, using screen-snaps of the model provided by the SBA.
Just the usual – full legal name, phone number, address, etc. Double-check that you spelled everything correctly – you’d be amazed how many people misspell their own name when in a hurry.
Overview of Assets
This section consists of several components:
· Accessible cash – This should include your checking account balance as well as any cash you have on hand.
· Savings account balance
· Total balance of any retirement accounts you have This should include IRA.
· Accounts and notes receivable In other words, debts or payments that are owed to you personally.
· Market value of any significant assets. Significant assets include automobiles, real estate, life insurance, and other valuable property.
Overview of Liabilities
Like the “Assets” section, your “Liabilities” section should consist of several parts:
· Total sum of all unpaid accounts . You should follow this with an itemized list (detailed in the following bullet points) of these unpaid accounts. Be sure to specify what each sum is due for and to double-check your math.
· Money owed to institutions – This includes money you owe to the bank,
· Unpaid installment accounts – This part can be a bit confusing. Ordinarily you list two of these: one for auto payments and one for any other payments you are making in installments. Mortgage payments should NOT be included here – they should be listed separately.
· Life insurance loan , if applicable.
· Total real estate mortgage owed – Here’s where those mortgage payments go.
· Unpaid taxes . Note: Taxes that have been paid for which payments have not yet posted do not apply.
· Other liabilities , or the total owed on any accounts not yet listed.
· Total sum of all liabilities.
· Net worth – To calculate this, subtract your total liabilities from your total assets.
Source of Income – This description can be general. Include your salary, net investment income, real estate income, and any other income you have.
If you have miscellaneous income, be sure to provide details:
Contingent Liabilities – These are kept separate from normal liabilities because they are, in a sense, not your sole responsibility. List any liabilities you have accrued through endorsement or co-creation of, say, a business, as well as any other special debts such as legal claims or responsibilities and income tax provisions on the federal level.
Notes Payable to Banks and Others – In this section, list the names and addresses of institutions or individuals to whom you owe money (the “noteholders”), as well as original debts, current remaining debts, and the amounts and frequencies of payment installments.
Stocks and Bonds – Include the number of shares, the name of securities, the cost, the market value quote or exchange and its date, and the total value of each stock and bond you have.
Real Estate – Name each piece of real estate that you own. Specify what type of property it is, the date it was purchased, and its original cost and present market value. You should also include the name and address of each mortgage holder (even if it’s you), each mortgage account number, the balance and status of each mortgage, the amount of money paid against each mortgage every month or year.
Other assets – Here’s where you should claim that rare diamond necklace or that Warhol painting you’ve got kicking around in the basement. Be sure to provide information on the lien amount, the lien-holder (name and address), the lien status and the terms of payment for every asset that is you’re using as collateral.
Unpaid taxes – Be honest. List every entity who you owe taxes, the type of taxes you owe, how much you owe each entity, when your payments are due, and any tax liens that are attached.
Other liabilities – This is the section in which you should list any debts you owe that have not been covered in the above categories. Examples include
Life insurance – List beneficiaries, insurance company details, and the face amount and cash surrender value of each policy.
Signature (authorization) – No document is properly legal without authorization. At the end of the PFS, provide a statement verifying the information preceding, followed by your signature, your printed legal name, your social security number, and the date of signing.