Finance Book

Accounting is considered the necessary evil for most business owners. Understanding small business finance is a must for any entrepreneur especially one at the helm of a enterprise running full steam ahead.

More importantly, if you expect to get top dollar for your business when it’s time to sell, you need to stay on top of your accounting.

Any business broker can tell you that probably one of the biggest reasons a business will not sell is because their accounting is a mess.

Good accounting and keeping clean books will help prove to a buyer that you are telling the truth about your businesses financial claims.

If a seller claims to gross $500,000 in sales and has no real internal bookkeeping and his tax returns only show $300,000 – the buyer will not have confidence.

If the buyer is savvy and already has the background in your particular industry you’ll get an offer – but a substantially lower one. Low-Ball.

The fact of the matter is that the overwhelming majority of buyers are first-time buyers.

They are people leaving Corporate America due to layoffs, retiring, or just plain looking for something new. First-time buyers will have more hesitation paying fair-market value for a business that cannot back up its claims.

A business that can show most or all of their gross sales on their tax returns stands a much better chance of selling at a good price.

One way of looking at it is: businesses that do not report a healthy portion of their sales are “stripping value” as they are operated. On the other hand, when reporting more income on the tax returns, the business will receive more value later when it sells.

If your serious about selling your business some day, a couple of suggestions are to brush up on your small business finance and incorporate better accounting methods or consider hiring a bookkeeper or an accountant put your finances on system.

The other suggestion is simply to report more income. If you’re worried about higher taxes, talk with a competent small business accountant about taking advantage of all the available write-offs and tax laws.

This way, when the time comes to sell, you command a higher asking price and reduce your likelihood of qualified buyers losing confidence in you and your business.

By: Jason L. Pittman

An income statement a.k.a. Profit & Loss, is a summary of income received and expenses reported during a stated period. The periods are usually stated in monthly, quarterly, or annual terms.

A mid-month statement can misrepresent the data. For instance, if your business records most of your sales in the first 7 days of the month but does not record expenses till after the 20th of the month. This mid-month statement will overstate income and understate expenses.

Income can also be called sales or revenue.

Income can be subcategorized by type of sales. For example a fish store could have: Freshwater Fish, Saltwater Fish, Equipment, Tank Supplies, and Food. Breaking down income this way at the end of the period helps the owner look at her Income Statement and know the dollar total of each type of sale. Another tool is to know what percentage of your sales come from new customers versus existing customers.

One common mistake is to track income that is not earned by selling your business’ product or service in the income section of the statement; e.g. sales of assets, loan deposits, or tax refunds. Loan deposits are tracked on the balance sheet. Other income generated from other business activity such as gain on sale of assets and tax refunds is reported at the bottom of the statement after expenses in the area reserved for non-operational income.

When is a sale a sale?

A cash accounting method records the sale when the customer pays. An accrual method records the sale at the time the customer order is confirmed. Payment is handled separately on the balance sheet against the receivable generated from the sale. Why is this an issue? The accrual method attempts to match a sale’s income with its expenses to better determine if the sale was profitable. Cash accounting tracks sales and expenses as they are paid by your customer or you making it harder to determine if the sale was profitable.

When printing out your P&L use the feature (within software) called percent of income. What this does is divide each account for income and expenses by the total sales for the period. Monitoring this percent allows you to compare periods regardless of the amount of the income or expense. For example, if sales for the month are 50,000 for January and your payroll is 10,000, then 10,000 divided by 50,000 equals 20%. This translates to: for every dollar of sales you spend 20 cents for payroll. The next month your sales are 40,000 and your payroll is still 10,000. 10,000 divided by 40,000 equals 25% or for every dollar of sales you spent 25 cents for payroll. You can see how knowing the percent of income can be a valuable management tool.

By: Bruce D Hunter

Are you a small business owner? If you are, you’ll know that running a small business is one of the most difficult things you’ll ever do in your life. You’re the company’s spokesperson, owner, founder, advertiser and investor. You are its inspiration. It is your livelihood and your passion. And like all passions it is all consuming.

It has you crunching numbers when you should be sleeping. It has you sketching out ideas on napkins in restaurants when you should be eating. But like any love affair the irritations are worth it. You know that almost nothing in your life can match the highs that your business gives you. So stick with it! Give your business all your heart and soul. But be sensible when it comes to your cash.

Business Finance.

Starting your business can be incredibly costly. Buying the machinery, renting the premises, purchasing the advertising space… well you get the picture, you’ve been there. You are also probably aware that the cost of kicking your business into life is so high it can affect your businesses ability to grow later on down the line.

You’ve established yourself as a great business; you know you have the ability to expand and to grow. But you just don’t have the cash to do it. But what is the best way to get that much needed cash injection? You don’t want to be taken for a ride. This is why you need to know about business finance.

Small Business Cost.

The first thing to do when you start investigating small business finance is to look carefully at what you want to achieve. Having clear goals is one of the basic rules of success in business. If you are going to borrow money to support your business you must have a clear aim in mind. That way you can easily track the success of any investment and see how much, making your small business grow will cost. So, determine what you want. Are you purchasing assets, such as land or machinery, or stock? Or are you looking to improve your market position through advertising, or expand into new markets? Whatever you’re doing be clear about your goals.

Small Business Finance.

There are two types of small business finance available to you. The first is the more traditional and common form, known as ‘debt finance’. This involves your company lending money from a financial institution, usually your bank. There are up sides to this deal, you get your cash and you keep all your business. You do have to pay more back than you borrowed in the first place, with the onus on you to repay as soon as possible.

However, if you have clearly identified a use for your money this should present no problem to you and allow you to expand quickly. This is why it is the route taken by the majority of small businesses. If you fail to pay back the money you have borrowed however the consequences are severe, as part of the agreement will involve collateral. Often, this could be your house.

A less common option is that of ‘equity finance’. Ever seen the TV show Dragon’s Den? Then you’ll know what I’m talking about. Equity finance is when an investor gives you the cash you need and in return you give him a share, or a stake of your business. As the investor has no assurances, unlike the bank, he or she requires a much greater pay off if things go well. They want some of those profits! However if things don’t work out, you won’t be sleeping in the streets!

Your Future.

So there are plenty of ways you can offset your small business cost. Small business finance is easy to get if you pitch correctly and your business is heading in the right direction. Whichever mode of business finance you choose make sure you keep following the dream and your passion might end up making you millions.

By: George Butler