How to Prepare Financial Statements for an Investment Club

by David Ingram

Investment clubs consist of numerous independent investors who pool their funds to increase their investment-earnings potential. Investment-club members generally meet on a regular basis to discuss and vote on investment options to pursue. Investment clubs can be organized as private corporations or limited liability companies to provide a layer of liability protection for club members, and clubs can prepare financial statements like any other business. However, due to the unique nature of investment clubs' business models, financial statement line items can be a bit different than traditional product- or service-based businesses.

Step 1

Compile data on assets for the balance sheet. As an investment club, your main asset is likely to be your investment holdings, including stocks, bonds, mutual fund shares, real estate holdings or any other asset the clubs intends to sell at a profit. List any free cash the club holds in deposit accounts in the assets section, as well.

Step 2

Gather data on club liabilities for the balance sheet. An investment club is not likely to take on debt for the same reasons as a traditional business, since most or all of the club's funds should come from members' cash infusions and investment income. List any outstanding margin balances in the liabilities section if your club uses margin trades, and any other outstanding debt balances.

Step 3

Create a balance sheet using your assets and liabilities data, as well as data on your owners' equity accounts. List funds contributed by club members in this account, as well as any dividends paid to member-shareholders.

Step 4

Record the income and loss of the club in an income statement. Separate income from capital gains, interest, member contributions and other activities, such as accounts payable if the club invests directly in debt. Subtract any capital losses and other club expenses, including fees for leasing office space or funds paid out to members, to arrive at a net income figure.

Step 5

Use the net income figure from the income statement as the first line item in your statement of cash flows. Consider your club's cash inflows and outflows before deciding whether to create a cash-flows statement. A statement of cash flows makes less sense for an investment club that keeps all of its funds invested at all times. A club that is continually taking on additional cash contributions and distributing cash to members, on the other hand, can benefit from creating a cash-flow statement to gauge how well it manages its cash. Generally speaking, a club which takes in more cash than it disburses can continue to increase its total portfolio value, assuming there are no large investment losses.