The 5 Financial Reports You Need to Get Approved for a Business Loan

  You don’t have to be an accountant to realize that your company’s financials are extremely important. You also don’t need to be an accountant to properly run and manage financial reports. In fact, if you’re a small business owner, financial reports should be a regular part of your life — especially if you hope to apply for small business funding in the near future. In this blog post we’ll list and explore the five most important financial reports you’ll need to provide a lender with before they’ll agree to loan your business money.

1. A Balance Sheet

Let’s start with the balance sheet, which can be thought of as a quick snapshot of a business’s financials. It’s a high-level document that identifies what a business has or is owed, and what it owes to others such as creditors, vendors, etc. Balance sheets are normally split into two categories: assets and liabilities.  

• Assets: These are the things your company has; property, equipment, technology, tangible things a business owner could sell if he or she needed to. The balance sheet for a small company might also include bank and investment accounts, and accounts receivable information.

 

• Liabilities: These are the things your business owes money on and generally includes credit cards, business loans, and accounts payable.

  After subtracting what your business owes from what it has, you get equity. In an ideal situation, this will be a positive number — one that grows greater each and every year that you’re in business.

2. Your Company Income Statement

Arguably the most important financial document of any and every business out there, a company income statement  (also known as a profit and loss statement or a P&L) illustrates how much money an organization actually makes, where that money comes from, and how funds are spent after they’ve been acquired. For an example, let’s take a look at Bob’s Music Store. If Bob has a properly maintained income statement on file, we should be able to view it and see what percentage of the store’s revenue comes from instruments, accessories, clothing, etc. We should also be able to see how much Bob spends on inventory, what it costs to employ his team, and the price for any tools Bob uses to run his business such as monthly fees for POS software. We recommend analyzing your company’s income statement on a weekly basis, though this may be a bit excessive for some businesses. At the very least, consult your P&L once a month. When you do, look for trends. How have things changed in the last year? What’s working well and can you double down on it? Questions like these are important to ask yourself on a regular basis and will allow you to focus on the areas of your business that are making you the most money, while eliminating (or at least downsizing) the areas that aren’t as lucrative.

3. Revenue Per Customer

Revenue per customer is an important financial report. Unfortunately, it’s often forgotten by business owners hoping to qualify for small business funding. A revenue per customer report tells both you and a lending company (bank or alternative lender) how much your business has profited off each of its customers over a specific period of time. For instance, the revenue per customer financial document for Natural Designs, a small landscaping company, might look something like this over the previous year:  

• City Parks: $20,000
• Bellview Elementary School: $15,000
• The Jones family: $5000
• The Thompson Family: $6000

  If you operate a service-based business, you’ll want to pay special attention to this report. While repeat customers are likely the lifeblood of your company, relying too heavily on one or two income streams is a recipe for disaster. In the above example, $20,000 of Natural Designs’ $46,000 annual revenue came from one account. What happens if City Parks decides to hire a different landscaper in the future? Natural Designs will lose just over 43% of its income. It’s important to diversify your business whenever possible. Not only will this protect your company if/when a tentpole client decides to part ways, but it also gives lenders more confidence that, should they loan you money, you’ll be able to pay them back.

4. Accounts Payable Aging

The accounts payable aging financial report is a representation of the amount of money your business owes, and who it owes it to. When this financial document is properly maintained, you’ll be able to quickly glance at it, know who you owe, and make your payments on time. This is important on numerous levels. Paying vendors on time will enable you to keep working with them and may lead to better deals in the future. Paying creditors on time ensures your credit score remains satisfactory and you avoid paying late fees. In regards to business funding, a solid history of repaying your company’s debts on time is a major factor when applying for a loan. No financial institution will agree to lend you money if they’re unsure of your ability to pay them back.

5. Accounts Receivable Aging

While the accounts payable aging report signifies what your business owes, the accounts receivable aging report illustrates what other companies owe you. Most small business owners enjoy looking at this report much more than the previous one! But things aren’t always rosey in the A/R aging department either. This report needs to be regularly consulted to ensure your business is being paid on time and in the correct amounts. We recommend noting the customers that regularly pay late. These companies are usually the first ones you should “fire” when you get the chance. Remember, you got into business to have more control over your life. Stressing about tardy payments doesn’t fit this objective. Continually working with these kinds of customers may also make it harder to receive business funding. Do yourself a favor and maintain and monitor your company’s accounts receivable aging report. Then commit to letting go of any customers that continually miss payment due dates as soon as you’re realistically able to. Trust us, you’ll be better for it.

Get Your Financial Reports In Line

The five financial reports listed above are essential, both for running a profitable business and for acquiring a small business loan. If don’t currently have these documents handy and properly maintained, we suggest you do so now. It will be more than worth the effort, we promise. When you’re ready to apply for small business funding, give us a call. Our financial experts are standing by and ready to help you develop a unique strategy to achieve your goals.