Gone are the days when the last couple of tax returns would suffice to get a business loan. The banks, spooked by the credit crunch, now require precise information before lending you money. So what sort of shape are your business accounts in?
Typically before lending you money or extending an overdraft, banks will want to see:
- Recent financials;
- Copies of business contracts;
- Along with any information supporting future income projections
If you need a business loan for business growth or survival, you will need good current business accounts, at least up to the last quarter.
How do you get your business accounts in shape for both management reporting and borrowing purposes?
- Firstly your basic bookkeeping needs to be accurate
- Your Chart of Accounts needs to be set up right from the start
- 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 e.g. is the total of your Accounts Receivables report the same as the figure shown in the Balance Sheet?
- Does the bank account reconcile or 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?
- They will need information from you regarding the last couple of year’s business accounts
- 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 cash flow 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 your business accounts for a business loan application. Getting it right can pay big dividends as it will help you assure the bank of your financial control management. Good information will set you apart from the others.
MJ Accountants can assist with preparing your accounts for a business loan, we offer bookkeeping and accountanting services and are flexible to be able to come to your business and go through everything with you at a time and place convenient to you. See our Services page for a full list of how we can help and contact us today.