December 23, 2008
Most of us remember with fondness the lovable small-town lender played by Jimmy Stewart in the movie, “It’s A Wonderful Life.” But in real life many small business people become intimidated by transactions with the financial community. The mergers, consolidations, bank closures, staff transfers and government bailouts have added to this feeling.
At the Small Business Development Center, we often have occasion to meet and talk with local bankers. Without exception they have always shown their support of our efforts to aid small business owners through their participation in the activities and workshops we sponsor. We are happy to report that up close they are neither intimidating nor impersonal in any manner, but rather are very human, personable and professional.
It is helpful for the small business owner to keep in mind what bankers are all about, where they are coming from, and what they are really looking for when considering loaning money. It is the bankers fiduciary duty to perform a “due diligence investigation” before approving a loan or a line of credit to anyone. Bankers and other lending agencies look for the owner to have a strategic business plan, possess the necessary experience, and to have the required facilities to generate sufficient cash flow to repay a loan.
Bankers want to know what sales were over the last three to five years. This helps as it shows the growth rate and possible earning potential of the business. The cost of sales, which is known as cost of goods sold, along with expenses and cash position demonstrate financially how the business can survive. Accounts receivable, inventory, and accounts payable trends also impact the business survival ability.
In addition to the financial side of the business equation, it is necessary to include a detailed description of the owners and managers of the business and include their track record. Such as, how long have they been in their job and what is their experience in this type of business? How much of the company does the owner own? What is the legal structure and organization of the company?
The banker desires to loan money; however, it is imperative a banker ensures the loan will be paid back just as any of us would want if we were to make a personal loan to someone.
Over the next few weeks as 2008 winds down and 2009 arrives, it is time to reflect on past accomplishments, failures and future endeavors. To begin the process start with a thorough review of the financial statements that consist of two main statements: the balance sheet and income statement; also called profit and loss statement or statement of revenue and expenses. Review the business using an outside perspective. Document, analyze, and discuss the findings with a professional team; then make decisions on how to proceed in the future.
Source:http://www.cnjonline.com/news/played