“Use of Proceeds” statement is just a simple summary to help give readers a fast appreciation of how or where you intend to spend investor funds. Most often you will see this information in the front section of business plans for later stage private equity transactions.

This type of presentation can be helpful to both startup and early-stage entrepreneurs because it provides a clear picture of management’s spending priorities before reading other sections of a business plan. Another benefit of this simple presentation is to help first-time entrepreneurs seem less like rookies. The presentation says that the founding entrepreneur is “financially-sophisticated” and attuned to the jargon and information needs of time-strapped business plan readers.

Perhaps most important, a Use of Proceeds statement provides clear notice of spending intent to prospective investors. If an entrepreneur’s intent is to use a sizable portion of investment funds to pay off debt, buy a building or enter into a joint venture deal with a partner, then disgruntled shareholders can’t complain in coming years that they were misled or not adequately informed about your plans.

A Use of Proceeds statement is usually presented in a simple summary chart plus some optional commentary. The section is rarely more than two pages. Notice in the example below that the spending categories are quite broad and the amounts of projected spending are rounded off to the nearest thousand. If your business plan states your intent to raise funds within a range – say between $500,000 and $750,000, use the lower amount for your Use of Proceeds chart.

To develop your Use of Proceeds statement, turn to your financial projections to identify four to six areas of primary cash expenditures. Most startups allocate funds to research and development, website development, intellectual property filings, equipment purchases, advertising campaigns, staff salaries and benefits, debt repayments and inventory buildup.