Get Your Accounts In Shape For Business Borrowing And Growth

Monday 12 January, 2009

by Sue Hirst

Business accounts are not a very sexy subject ... at least when you are up to your ears in running, managing and problem-solving. Unfortunately though, a poor set of out-dated accounts will really hold you back when you need to borrow and your bank manager is asking for current accounts, cashflows and projections.

The banks have had a hell of a fright, and are much more demanding that you have current information for them to assess before lending you money or extending an overdaft. Typically they want to see:

• Budgets
  
• Forecasts
  
• Cashflows
  
• Recent financials
  
• Copies of business contracts
  
• Any information supporting future income projections

Gone are the days when the last couple of tax returns would suffice to get a business loan.
In the past, your accounts may have typically been prepared for tax return or GST purposes. As a business owner, you may have felt you had a good enough handle on how the business was going throughout the year, without feeling the need for updated financial reports on demand to determine if you had made a profit or loss and had a tax bill due.
The point is, if you need funding for business growth or survival, you will need good current accounts, at least up to the last quarter. I've seen many times where the books were being done regularly but the quality of the data entry had severely compromised the quality of the information output. Obviously if the transactions are not entered correctly, your reports from accounting software will be very misleading. To give such a set of accounts to a bank, with incorrect treatment of transactions, the bankers will question the ability of the business owner to manage their own money - let alone that of the bank's.

How do you get your accounts in shape for both management reporting and borrowing purposes?

Bookkeeping

• Firstly, your basic bookkeeping needs to be accurate and of good quality.
  
• Your Chart of Accounts needs to be set up right from the start. This is the accounts that you set up in your accounting software to categorise expenses and so forth.
  
• Have Direct Costs been allocated to the correct accounts, or have they been allocated to an expense account or overheads? This can have a big impact on the gross profit shown in the Profit and Loss Statement. If the bank checks against industry benchmarks your results could be way out of line.
  
• Some reconciliation may need to be done to ensure it all makes sense. For example is the total of your Accounts Receivable report the same as the figure shown in the Balance Sheet?
  
• Does the bank account reconcile or has it been fudged? This means have entries been entered in the past to make it balance?
  
• Has the GST been properly reconciled and have you paid or been refunded the correct amounts?
  
• If you aren't 100% sure of the bookkeeper's skills and qualifications, the accounts may need to be reviewed by someone other than the bookkeeper.

Your Accountant

• If you don't have an in-house or outsourced Financial Controller you will need to approach your accountant.
  
• They will need information from you regarding the last couple of year's accounts, if they aren't already available.
  
• They will need information about the current year results from your accounting software and your bookkeeper.
  
• They will need to sit down with you and come up with the projections for how you think the business will perform in the next year or two.
  
• They will need to get information from you to produce a Cashflow report, so the bank can see your cash position in the future.

As you can see there is quite a lot of work to prepare for a lending application. Getting it right though can pay big dividends, if you want to assure the bank of your financial control management. Good information will set you apart from the others, who roll in with hastily prepared numbers of dubious accuracy.

Source:ceoonline.com