Even though your business is busy and is earning income, it may always seem like money runs out. Unfortunately, profit does not equal cash. Stephen discussed GAAP - Generally Accepted Accounting Principles. It is important to understand what is (for accounting purposes) considered assets, liabilities and equity. Assets are cash, inventories, buildings, land, equipment, accounts receivable and marketable securities. Liabilities are accounts payable, wages payable, taxes payable, notes payable and the mortgage loan. Equity is common stock, membership interests, retained earnings, and distributions. He asserts that it is necessary to understand what falls under debits (assets and expenses) and what is considered credits (liabilities, equity, and revenue). Companies such as Gulf Coast CFO can assist a business in analyzing your business' financial situation and forecast scenarios that you need to consider. "Businesses fail because they simply run out of cash or they do not have access to it when they need it most," he said.
There is a strong connection between your financial statements and what bankers want and need to consider you for a business loan. Jeremy shared his insight about what Centennial Bank looks for to be considered for a loan. He emphasized that to obtain a loan, the individual/business inquiring must have good credit, collateral and past years of financial and tax statements. An already established relationship with the bank is also a good standard practice before attempting to apply for a loan. He explained that there are a variety of loans that are available including SBA loans. However, there are fundamental differences in the requirements for each type of loan.
The most valuable takeaway from this session is that keeping solid financial records are central to the success of business operations. It pays to seek out help in getting the financials in order. It may be the difference in seeing the writing on the wall, forecasting potential growth and accessing additional funding for the future.