By Karlene Sinclair-Robinson
While reading this article, you might find that I am slightly exasperated. Why? Too often, I see business plans with financial statements that are just not logical. To further compound the problem, simple addition and subtraction seem to be a problem. Some small business owners, especially startups, are so scared of these documents that they tend to mess them up. So, I figured I would write this article and provide some help by writing this article.
When the numbers do not add up, it tells a story or shows a pattern of incompetency, carelessness, or inability or unwillingness on the part of the business owner to seek out support to solve these issues. Understanding how financial data are compiled for such documents as Sales Forecasts, Cash Flow, Profit and Loss, and Balance Sheets is essential. Using a CPA or even a Bookkeeper can help; however, the best thing to do is get some technical assistance or training in this area. Remember, this is your business.
It does not matter whether you had an “A” or a “D” on your grade report for Math; you must learn the basics, or you can just say “bye-bye” to your business right now. What is the point of putting so much effort into other areas of the company, such as marketing, bringing on new clients, etc., when you have no clue if you are making money?
Your financial statements or projections tell lenders the story of your business or idea from a ‘numbers’ perspective. If the lender comes across such simple mistakes as columns or rows not ‘totaling’ correctly, this could be detrimental to your receiving the loan necessary to move your business in the right direction.
Financial Statements
Here are key financial documents you should be up-to-date with:
- Sales Forecast – this document tells how you came by your Sales or Revenue figures. Example: You plan to sell XXX number of widgets at $xxx price. This helps your lender better understand how you came by your sales numbers.
- Cash Flow Projections/Statements – Your business cash flow tells how money flows into your business and how it flows out – Revenue/Sales vs. Expenses. Completing Cash Flow projections gives you a baseline to work with while using the Cash Flow Statement as the current and active document.
- Balance Sheet – identifies the business’ assets and liabilities. It includes current and long-term assets and liabilities. It is called a ‘Balance’ sheet for a reason – it MUST balance.
- Profit and Loss Statement – identifies and summarizes the company’s revenue and expense position from a profit or loss standpoint. It will define the business’ Profit, Earnings Before Tax (EBT), and Profit After Tax (PAT).
- Personal Financial Statement – This is another document that must balanced. It tells the assets and liabilities, along with the ‘Networth’ of the business owner.
When you understand these documents better, it will be easier to operate your business. They are the foundation of your business. When you are clear on these financial statements, you can rest easy that you know how your money is being made and how it is being spent. This just might keep you out of trouble.
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Bio:
Karlene Sinclair-Robinson is the author of Spank The Bank: The Guide to Alternative Business Financing, Founder of Spank The Bank NOW Business Academy, and Managing Member of KSR Solutions, LLC. She is considered a foremost expert in ‘Alternative Business Financing,’ business development, access to capital, growth strategies, credit management, small business, and start-up management for success. Karlene has been an entrepreneurial instructor and trainer for over fifteen years. She is also the Director of the Business Finance Center at Community Business Partnership, a non-profit and certified CDFI organization based in Northern Virginia. Karlene is also an Adjunct Professor at a local area community college. She is originally from sunny Montego Bay, Jamaica.