Your successful small business generates cash. The growing business, however, often requires more capital to reach projected long-term goals. When you started your new business, you had to invest substantial personal resources. In addition to the cash injection, and a great deal of “sweat equity,” you may have borrowed money in the form of a commercial loan.
What Bankers Look For
The continued success of your growing small business will depend on your ability to inject additional capital and your ability to borrow the additional funds. Bankers are interested in your character, your cash injection, your ability to repay a loan and your collateral. The value of your business assets may be the only collateral you need, but a banker may also require you to pledge personal assets.
As a successful business owner, you recognize the need for an advisory team and you value that relationship. Most critical is the relationship you have with your banker. You can gain your banker’s support for your business by knowing your banker personally and sharing your business successes, setbacks and financials. Keys to a mutually beneficial long-term banking relationship are an established financial track record, openness with your banker and willingness to seek your banker’s advice.
Understanding Financial Statements
To manage the cash position, successful businesses monitor their profit and loss statements and balance sheets, if not monthly at least quarterly. Monthly monitoring of cash-flow statements is essential as your business grows. The actual costs of a production facility or production line may be out-of-line with budgeted costs. Sales projections for a new product line may have outpaced your ability to generate the cash to restock inventory. You may need to increase your promotion and advertising budget because sales have declined. By frequently reviewing your business financial statement, you will see the issues you need to address and gain insights that will help you remain financially sound.
Hiring an Accountant
Successful entrepreneurs know their limits, and they know the value of having an accountant as a member of their advisory team. No one should know your business as well as you; you should be aware of every dollar coming in and every dollar paid out. But you may need a seasoned professional accountant to assist you with your accounting and tax issues. Accountants can help prepare financial statements from your records, assist with payroll tax reports, advise you on the benefits of building and equipment leasing or ownership options, and consult with you about the implications of existing tax laws and upcoming legislation.
Managing Cash Flow
Cash flow is the “lifeblood” of the business. You must have cash on-hand to pay existing suppliers, principal and interest, wages, and taxes. Managing cash flow not only insures that you will be able to continue business during economic downturns or times of lower cyclical sales, but also that you will be able to seize opportunities that support your growth strategy.
You will want to monitor expenditures that drain cash from your business. The most likely culprits will be uncollected and aged accounts-receivable, overextended credit to customers, high principal and interest payments and excess or aged inventories. The successful business owner plans cash needs for at least 12 months, reviews and updates this plan regularly, and deals with shortages before they occur. Experience teaches that it is easier to approach a banker when you don’t need the money than when you are in a crisis.