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Most business owners are extremely smart and intuitive about their companies, but many fall short in the area of record keeping. This is often because they’re too busy and don’t want to invest the time or money to set up an automated system. They write checks, make deposits and think that as long as they have a positive balance, they’re doing fine.
I tell such clients that they can’t run a business from their checkbooks. They may be profitable now, but they don’t have all the information they need to make good decisions about the future.
At Tompkins Mahopac Bank, we suggest that a business owner should have a minimum of the following: an income statement (also known as a profit and loss statement); a balance sheet; accounts payable and accounts receivable aging reports; and a cash flow statement. These will provide you with a better understanding of how your business is doing and will provide your banker with more knowledge to help finance it.
- The income statement shows how profitable your business is over a period of time, as well as how much cash you have to pay back debt or invest in growth. This is the document of primary interest to your banker and anyone interested in investing in your business.
- The balance sheet shows the financial health of your business at a particular point in time (usually at the end of the month or quarter.) It lists your assets, including what you own and control; your debts; and what you own after you’ve paid off your liabilities. The balance sheet shows how well you’re managing your assets, and helps you track seasonality and any changes to your accounts payable and receivables.
- Accounts payable and accounts receivable aging reports show you and your banker where you have the greatest concentration of paying and delinquent customers. Too many delinquent payments eat into your cash flow and could impact the use of your line of credit.
- The cash flow statement shows your sources and uses of cash and whether cash is exiting your business faster than it’s coming in. This report is particularly important in demonstrating your ability to manage gaps in cash flow, which is important to your banker.
The best way to track your business records is with an automated system. There are a number of accounting software programs available to help you do this. In addition, you may consider designating a staff member to manage it, or consider hiring an outside accountant to do so. Many accounting firms are happy to offer reasonably priced arrangements for small businesses. You provide the journal entries, and they enter and manage them then provide you with the documentation you need.
Knowledge is power, and knowing how your business is doing in an organized and timely manner gives you the confidence to make better business decisions and gives your banker the information he or she needs to help you finance them.
Talk to an experienced banker who will get to know both you and your business. Contact Ron Ferri, Tompkins Mahopac Bank, Vice President, Small Business Lending Manager rferri@tompkinsfinancial.com 845-278-1027
