One of the missions of the Financial Assistance Division at OSDBU is to help your company grow and prosper so you can compete for larger contracts. It is always a good time to perform a financial check-up to make sure your company's financial engine is fine tuned and ready for lending and/or bonding assistance.
Therefore here are some financial tools to help you get started.
No matter the size of the business, every entrepreneur knows that "cash is king." Managing your cash flow can make the difference between success and failure. The Small Business Administration (SBA) provides some good tips on this topic. Good cash management is simple. It involves:
- Knowing when, where, and how your cash needs will occur.
- Knowing the best sources for meeting additional cash needs.
- Being prepared to meet these needs when they occur, by keeping good relationships with bankers and other creditors.
- The starting point for good cash flow management is developing a cash flow projection. Smart business owners know how to develop both short-term (weekly, monthly) cash flow projections to help them manage daily cash, and long-term (annual, 3-5 year) cash flow projections to help them develop the necessary capital strategy to meet their business needs. They also prepare and use historical cash flow statements to understand how they used money in the past.
For additional information, visit the SBA's Cash Management page.
| Preparing Your Cash Flow Statement |
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Source: SBA's Women's Economic Self-Sufficiency Team, Albuquerque, NM, and Online Women's Business Center, 8/97.
The cash flow statement is used to analyze the cash inflows and outflows (where the money went) during a designated time period. There are three major components of cash flow: operations, investing and financing.
If you regularly do a monthly profit and loss statement, you will be aware that there are certain items which may not affect your profit and loss statement for some time, such as:
- Substantial increase in inventory purchases;
- Increase in accounts receivable (money owed to you by customers);
- Reduction of credit by suppliers;
- Purchase of equipment;
- Unrecognized obsolescence of inventory (stale items);
- Bank's refusal to renew or extend loan; and
- Lump sum payment of debt.
A cash flow statement will highlight these activities in a way that an income statement will not. And certainly your banker will want to see a cash flow statement showing how you have used the funds from a previous loan before they approve an extension or a new one. Without the cash flow statement, you will have an incomplete picture of your business.
To determine operating cash flow, you start with net income and add back expenses which did not result in inflows or outflows of cash. The most common non-cash expense is depreciation. When working with historical figures, adjusting net income with depreciation and other non-cash expenses is much simpler than determining all the revenues and expenses which require or provide funds.
Next, you identify all the balance sheet accounts that are associated with operations and determine the change in the account from the end of the last period to the end of the current period.
Operating cash flow will include all the balance sheet accounts that are a part of normal operations. Trade receivables and payables as well as accrued expenses, prepaid expenses and other current assets that are a part of day-to-day operations are included in operating cash flow.
But what about the other balance sheet accounts - how do they fit in to this picture? The remaining balance sheet accounts will either be investing activities or financing activities. Once again, you determine the change in each balance sheet account from the beginning of the period to the end of the period, tally them up, and there you have it -- a complete picture of the cash flow for your company.
For more information visit SBA's Capital for Growth page.
| Accounting for Your Business |
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This SBA accounting page details several accounting topics that are important to your small business, including business taxes.
| Managing Your Company's Cash |
Managing and monitoring your company's finances is a crucial for your growth company. Learn how to succeed from the SBA's online courses on financing and managing growth.
| Profit and Loss: Income Statement Template |
The income statement -- also called the Profit and Loss or P&L statement -- is a financial reporting document that allows you to analyze sales revenues from operations, the cost of sales, and other expenses. SCORE, the nonprofit association dedicated to entrepreneur education and the formation, growth and success of small business nationwide provides a template to help small businesses create a profit-loss statement. It is available as either a PDF or Excel file.
SCORE's balance sheet templates synthesize an entrepreneur's assests, liabilities, and equity into one easy to edit document. Additionally, these financial terms are clarified for the user. The balance sheet template may be downloaded as either a PDF or Excel file.
| The Importance of Good Credit |
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A good credit rating is necessary to borrow from professional lenders. The Department of Commerce's Minority Business Development Agency (MBDA) lists the following factors that the credit bureaus consider before approving a loan:
- Many lenders use credit scores, or more specifically credit bureau scores, to help determine whether a business or individual is likely to repay a loan on time.
- Credit scores are a "snapshot" of your credit risk at a specific point in time.
- The credit score is a summary of the borrower's credit report reduced to a numerical measurement that is used to reflect the borrower's ability to manage credit.
- Your score is based on the records compiled by the credit bureau and summarizes the information reported each month by the borrower's creditors (i.e. the amount of existing credit and payment history).
- Please remember that the credit score is just one method used by the lenders to make a credit decision.
Visit the MBDA's webpage on credit scoring for more information.
Please visit the following sites for more information on managing the financial resources of your growing company.
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Short Term Lending Program
