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Money Management (Distributed by the New Jersey Society of Certified Public Accountants)

Get a Jump-Start On Your Business's Financial Growth

Advance planning and effective preparation can improve your chances of securing financing for your business, reports the New Jersey Society of Certified Public Accountants (NJSCPA). Presenting yourself, your business, and your financial needs thoroughly and competently are key factors in convincing funding sources that your business represents a good credit risk. Here are several steps that CPAs recommend you take before seeking external financing.

Research Appropriate Funding Sources
Some business owners waste unnecessary amounts of time looking for financing in all the wrong places. For example, venture capital may sound glamorous and exciting but, without solid proof that your business venture is on the verge of explosive growth, your chances of attracting a venture capitalist are slim. Depending on the nature of your business, you may have better success with a traditional lending institution. Keep in mind, however, that different banks have different lending policies when it comes to small businesses. The same holds true for individual loan officers.

Establish Relationships and Build Credibility
Don't wait until you're ready to seek financing to establish relationships with bankers and other funding sources. Open your business checking account with a bank that has a reputation as a small business lender. Then, take the time to get to know the branch manager and small business lenders and make them aware of your business and its successes. In addition, try to develop an understanding of how the bank makes its lending decisions.

Review Your Business Plan
Your business plan serves as a critical assessment tool for the lender you approach for financing. A thorough and well-organized plan can help to demonstrate that you have the knowledge, managerial competency, and technical skills to run a successful business. Be sure your business plan presents your company's track record, indicates industry trends, and reflects the current status of your company.

Be Prepared
Prepare a realistic estimate of how much financing you need, how it will be used, and your repayment plans. Keep in mind that operating on a shoestring budget may restrain your company's growth, while too much debt can cripple it. Be sure you have a clear and specific strategy for how you intend to use the money you borrow. Will you introduce new products or services, modernize your facility, expand your market, or buy new equipment? The more specific you are, the more comfortable you will make the lender.

Even more importantly, the lender wants to know that you can meet the expenses of your business and repay your loan from the revenue your business generates. Cash-flow projections prepared by your CPA can help to demonstrate whether profits would cover the proposed debt load.

Put Your Paperwork in Order
Having your financial statements prepared by a Certified Public Accountant adds credibility. He or she can be a valuable resource in the preparation of balance sheets, income statements, forecasts, cash-flow projections and other relevant financial documents. Schedule a meeting with your CPA to identify the documents you will need to apply for financing.

Check Your Credit
The bank will look at your company's past payment history to determine your creditworthiness. It's likely to also look closely at your personal credit history as well as your available collateral to back up the loan, especially if you are just starting out. It's a good idea to contact one of the major credit bureaus and request copies of your credit reports. Do this well in advance of the time you will be seeking funding to allow time to correct any mistakes. If there are legitimate blemishes on your credit history that you feel are the result of extenuating circumstances, be prepared to explain them fully.

Prepare an Effective Presentation
The presentation you prepare provides a unique opportunity to showcase your business and project your own self-confidence. Your presentation should accurately reflect your business by emphasizing its strong points and explaining its weaker traits. It should be formal and well supported by documentation.

Applying for financing does not have to be an intimating experience. By following the advice of the NJSCPA, you can get a jump-start on raising capital for your business.

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Money Management is a weekly column on personal finance distributed by the NJSCPA.

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