The Business Financial Information You Need For Funding

Most small business owners are quite eager to find avenues to help their enterprise grow into a thriving business. One key approach to help propel businesses forward is securing additional working capital, in order to get the business to the next level.

Usually, this means that the entrepreneur needs to go to a lending institution to get a small business loan. When meeting with a loan officer for this purpose, detailed business financial information will be required.

The most pertinent financial information that you will need to collect in preparation for applying for a small business loan are the basic financial reports that virtually all businesses of any size generate on a monthly or quarterly basis. These financial statements provide potential lenders with a profile of the financial situation of the business. They are also invaluable in providing the business owner with the management knowledge they need to strategically improve their ongoing business plan.

The most basic form of business financial information consists of a collection of financial statements and reports, which are prepared according to strict, standardized accounting principles. Since accounting practices and principles have long been standardized and accepted worldwide, virtually anyone with even a basic understanding can quickly understand the financial picture of a company that is painted by these basic reports.

The main reports that are generally part of a company's financial information are the following: the balance sheet, the cash flows statement, the profit and loss report, and the overall financial statements, which include highlights and summarize each of the other reports. While the financial statement provides a review, the individual reports go into specific detail for the period of time that the report covers. Many times, when monthly reports are generated there are also quarterly and yearly reports generated that help to provide insights into the overall, financial trend of the business.

The purpose of the balance sheet is to provide the details of all of the current assets of the business, all of the liabilities that the business is obligated to pay, and the resulting business equity. In order for this financial information to be most useful, it should separate the current assets and current liabilities from the listing of the long-term assets and the long-term liabilities.

The profit and loss part of financial information is the report that most commonly covers longer periods of time, usually per business quarter or year. These profit and loss statements often include comparison charts for the previous time period going back long enough to help to identify the important trends.

Without this comparison, it might be easy to assume a business is doing well simply because it is profitable, yet overlook the fact that it is less profitable than the previous year. These trends will be very important to the lenders as it gives them insights about the success of working capital management overall.

When preparing a statement of cash flows, it can be compiled by either using the indirect or the direct method. Generally, this kind of business financial information is better with more detail because the fuller the detail, the clearer the view of the business's financial situation. Most loan officers agree that for the purposes of obtaining financing, the more detailed the information the better because it shows that the business has nothing to hide.

Business Financial Success Comes With Proper Planning

Unless you happen to be planning to establish a charitable, non-profit organization of some type, the main reason why you may be interested in starting a business is to make a living or build wealth from the endeavor. For many people, the desire to "be your own boss" and escape from the shackles of traditional employment is part of the motivation, but the bottom line usually comes down to wanting some form of business financial success so that you are not living from paycheck to paycheck.

One of the most important things that you will do in your quest to enjoy business related financial success is to have a clear, detailed, and realistic business plan that will lay out a map for your progress in your new business. A well-done business plan will include financial projections, working capital management objectives, cash flows analysis, industry and competition analysis, a profile to target customers or a specific audience, and an outline of organizational and asset management ideas.

One of the common errors that a lot of new business people make, which contributes greatly to the high failure rate of new businesses, is not having a clear and complete picture of the marketplace in which they plan to compete. Spending some advance time in analyzing the industry and collecting enough pertinent information will give the entrepreneur a much better idea of what is needed in order to forge business financial success in a given field.

In most cases, when someone is looking to start a new business, they will need some type of start up, working capital to see them through until the business starts to make enough money to be self-sustaining, as well as to be able to pay out salaries. Because a new business has no track record of any kind and no net assets or financial statements to submit for a loan, the only business financial information that the lenders will be able to evaluate is the entrepreneur's personal credit and total assets.

Even if you have excellent credit and current assets that you can borrow against in order to take out a loan to get your business started, a loan officer will still require a detailed business plan from you. Without a thorough business plan, your aspirations are nothing more than wishful thinking and your loan application won't get very far in the process.

The lenders will want you to prove to them that you have a knowledgeable understanding of the industry you wish to enter, as well as sufficient management knowledge to be able to successfully take your business from inception, through the growth phases and into stability.

When an entrepreneur is heavily engaged in establishing and growing their own business, there is no doubt that it becomes a very personal endeavor. But often this perspective is just "too close" to be able to make important decisions that can lead to business financial success. However, when someone has taken the time to research and map out a clear and detailed business plan, this can help to overcome the challenges.

Managing Business Expenditures and Avoiding Unauthorized Expenditures

Effectively managing the financial health of a business is one of the most important tasks for a small business owner/manager. All activities of the business affect, for good or bad, the financial health of the business and the financial management of that business affects all other business activities. Without adequate financial resources - you are OUT OF BUSINESS!

In addition, responsible and disciplined financial management can protect the small business or LLC from attacks as well as attacks against the personal assets of the owners by outside interests, shareholders, and others with an economic interest. One of the best defenses against attacks on the business is to have a proper business structure, including a strong financial position.

Responsible and disciplined financial management requires a good working knowledge of financial statements, especially the cash flow statement, as well as the cash cycle of the individual business. While many small business owners are never going to become experts in this discipline, all should gain a good knowledge of the company finances and then in cooperation with a good CPA effective financial management is relatively straightforward.

All financial management begins with a carefully prepared, well supported, operating budget. In the case of a start-up business a start-up budget will precede the operating budget but both are required. Thereafter, a management control system must be instituted to oversee the financial activities of the business and see that the budget is followed.

One of the issues business owners experience, and one that can lead to claims that can pierce the corporate veil, is that of unauthorized expenditures. What this means is expenditures that are unnecessary for, and outside of the, normal business operations. This issue is closely related to co-mingling of funds but extends beyond that issue.

The issue of unauthorized expenditures can be an challenge for businesses of all sizes but can pose a particular problem for small businesses and LLC's that have only one owner or very few owners and no employees. In the case of a single member business, where is the oversight and control to come from? First and foremost the protection must come from the owner(s) having a high level of commitment and discipline to the proper financial management of the business. Thereafter, working closely with a good CPA can assist in providing additional and valuable oversight.

The question the single owner business must ask is "Do I really want to expose all of my personal assets to risk because of lack of business discipline"?

If there is more than one owner and employees are involved, all, especially the owners, have a responsibility to see that the small business or LLC is being managed in a manner to ensure success and protect against unnecessary liability.