Use of Funds

A use-of-funds statement is a breakdown of how a business intends to allocate capital received from investors or lenders. It specifies what percentage or dollar amount of the investment will go to each category of expenditure — equipment, inventory, marketing, working capital, hiring, facility build-out, debt repayment, or other costs.

The document serves as an accountability mechanism within the investor–founder relationship. By committing to a specific allocation in advance, the business constrains its own discretion over the investor’s money. In practice, the constraint is soft — early-stage businesses routinely reallocate as conditions change — but the act of producing the statement forces the founder to reason about priorities and signals to the investor that the capital request is grounded in specific operational needs rather than a general desire for funding.

Use-of-funds statements typically accompany financial projections in a business plan or pitch deck. They answer the investor’s question “what will you do with my money?” and connect directly to the cash flow statement — the projected outflows should reflect the stated allocation. A gap between the use-of-funds breakdown and the cash flow projections signals either careless preparation or undisclosed plans.