Business Financial Information Key to Acquiring Funding
Many owners of small businesses have aspirations of making their establishments grow exponentially. A key strategy is to acquire additional capital for the purpose of expansion and growth. For most small companies, the fastest and best way of going about getting such capital is to seek out a small business loan. This will require the owner to pull together all pertinent business financial information to provide to the bank when applying for the loan.
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.
Basic business financial information is a group of financial reports that are prepared and compiled in accordance with the generally accepted and standardized principles of accounting. Because of the fact that accounting principles have been standardized, anyone with a rudimentary understanding of each report is able to quickly get a realistic picture of the businesses activity and profitability for any given period.
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.
The statement of cash flows can be prepared under either a “direct method” or an “indirect method.” For this type of business financial information, the more detail that is presented the better, as the data will give a clear financial picture of the business. In most cases when looking for financing, the more information you present the better as it helps the lender to feel the business is not hiding important financial facts.
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Tags: business financial information, cash flows, current assets, financial statements, management knowledge, working capital management