Skip navigation

PlanningGrowth_Body.jpgAt some point in the growth of your company, you’ll likely need a financial helping hand. You might want to expand, acquire a company, obtain a project that requires more resources than you have, or have some other opportunity too good to pass up. Whether you decide to go to a bank for debt financing in the form of a term loan or are seeking capital from outside investors, there are some common strengths and documents that can make a difference in getting the funding you need.


Any business seeking funding needs to have a good hand on its financials and how it is performing relative to other businesses in its industry, says Tom Boyle, CPA, founder of Boyle CPA, PLLC, an accounting firm in Raleigh, North Carolina. Bankers and investors want to see that you understand the cycles of your business, the challenges and opportunities in your sector, and how your business compares to its competition.


“You have to know these things inside and out, because the last thing you want to do is present your financials to a lender and not be able to back them up,” he says.


Industry benchmarks and research can come from a variety of different places. Trade associations and media are a great place to start. In addition, services like Dun & Bradstreet’s and Hoover’s can give you basic financial and personnel data about companies in various sectors, as well as aggregate industry information. offers basic industry profiles and expense benchmarks in a variety of industries.


PlanningGrowth_PQ.jpgBoyle typically likes to present prospective lenders or investors with a 13-month trend report which outlines income and expenses, showing a full year’s cycle. If the year had anomalies, such as a particularly low cash-flow period or high expenditures, he might urge his client to show two or three years to illustrate the business’s earning power and capacity to repay the loan or earn money for investors. Prior to seeking funding, he also counsels business owners to “hoard cash.”


“Cash is king. Banks want to lend to really strong, healthy companies, and those aren’t always the companies that need cash,” he says. The more cash you have on hand, the more attractive you become to lenders, he says.


A typical loan or investor package will have at least a one-year profit and loss statement, income statement, balance sheet, and other documentation. For example, a professional services firm such as a law firm might have six figures in receivables, so it would show an accounts receivable report, he says. A waste company that just signed a big contract would want to show that, as well, while an apartment complex would show a report on its increase in leased units. Again, Boyle says, the package should be industry-specific and use documentation necessary to show an understanding of growth metrics in the business’s sector.


While some believe the package is all about the numbers, and that banking relationships matter less, Boyle says it’s still a good idea to get to know the manager of your bank and develop a friendly business relationship with him or her. While the loan needs to meet underwriting standards within the institution, the bank representative can be a good counselor, shepherding the business through the process and giving advice. A bank representative can also be a good source of contacts and referrals, depending on the industry sector.


“To land the capital you need, you need to be able to tell the narrative of your business. Your banker isn’t going to want to see you ‘wing it,’” he says. Winning over a lender means showing your business success story and backing up that presentation with solid numbers and industry benchmarks.

Criticalnumbers_Body.jpgOne of the greatest challenges small business owners face is predicting the future. Insight into trends, spending patterns, and opportunities can help a business move from a reactive mode into a strategic approach that drives growth. However, short of finding a crystal ball that will tell you what’s coming next, how can businesses best predict the future?


Often, the answer lies in studying the company’s own history, especially from a financial perspective, says Jeff Liebel, a partner at business advisory firm Counterpoint Consulting in Williamsville, New York. Yet, few businesses do that. According to the National Federation of Independent Business (NFIB), only about 5 percent of business owners spend most of their time on finances. Liebel says that the time spent on finances is usually focused on the most immediate demands of the business, such as year-end reporting for taxes, collecting receivables, and paying bills and payroll. To help owners dive into the numbers and get a better understanding of their businesses from a financial perspective, Liebel typically has them work on monthly profit and loss reports.


“They need to look at those numbers on a monthly basis and then create a cash budget to understand how the timing of cash is working relative to the cycle of their businesses,” he says.


Criticalnumbers_PQ.jpgOnce a business can look back on at least two years of data at such a granular level, patterns and trends begin to emerge, Liebel says. By using a few key numbers or metrics, many businesses can predict certain life-cycle events. One of the most important aspects to examine is how seasonal variations in cash usage play out during the course of the year. Many businesses that aren’t traditional “seasonal businesses” still have seasons when they sell more or need to spend more, he says. When a company needs to fulfill large orders, there is a process leading up to that point. It may include investment in inventory, materials or staff to deliver the customers’ orders or service. However, that investment may not be recouped for many months. Many times, businesses will only consider the cash cycle from the time they sell the product until the time they collect their invoice amounts, he says. But expenses come before revenue. When you examine the whole process, it’s possible to reduce the cash-conversion cycle, improve cash flow, and reduce the need for outside financing.


Another important insight that can be gained from examining historical financial data is how to invest capital to best grow the business as well as the most opportune times to do so, says Liebel. Growth opportunities, such as acquiring another business, investing in talent, upgrading equipment, or taking on large, new clients often require significant cash outlay. However, by understanding base operations cost over the past few years, as well as the fluctuations in cash flow and expenses that your business has, you can understand the periods when cash flow is most strained and work on timing expenditures for more flush periods or setting aside cash during those times for opportunities on the horizon.


“It’s important to go back and reconstruct what was going on at the time when you examine the numbers to get the whole picture,” he says. “The most important thing is really identifying your ‘E before R.’ What are all of the expenses you’re expending before you start to see revenue?” When you understand how that dynamic works within your business, you’re better positioned to make informed decisions about your company’s growth, he adds.

Filter Article

By tag: