The most convenient method to approach lenders for funding a small business is to have a well planned practical projection of approximate income statistics, beforehand. The emphasis is usually on maintaining practicality.
Such assessments need to be accounted carefully as convincing the lender of the repayment capabilities of the borrower helps in obtaining the finance. Complex calculation procedures have to be used in case the business is not a small one.
In these instances, certain supporting calculations have to be taken into consideration to obtain the cash flow figures.The initial part of the support calculations is the estimating the income and expenditure. The most important elements that are accounted for are the increases in earnings per month, the extra expenditures that accompany the earnings.
The establishment costs are very important with regards to accounting for small business finance. They are necessary to calculate the cash flow statements. The establishment costs include the various rents, employee payments, council taxes, interest, and wear and tear of the required infrastructure.
The borrowers calculate these costs on a monthly basis. The establishment costs are usually constant.
Relevant research and the intended marketing set up determine the amount of finance a borrower asks for. The borrowers pick up data from the market, either through comprehensive researches on their own or by employing market analysts.
The working capital is an important factor as far as determining the finance amount is concerned. Manufacturing and retail businesses need inventories. The usual categories included are raw materials, incomplete products that are left in the shop’s premises, and goods, that have not been sold, present in the warehouse.
These commodities take up a considerable amount of the earning. Professional accountants are usually employed to calculate these costs. Business capital, finance, accumulation from credit customers, makes up the cash receipts which are added to the opening cash balance.
The cash payments are the business expenses, purchasing properties and raw materials in cash, payments made to credit suppliers, money that has been drawn from business, as well as repaying debts. These are then taken off from the cash receipts to prepare the cash flow statement.
The balance sheet shows the costs of purchasing assets, and the statement of affairs which account for the liabilities and assets of the borrower. The borrowers need to be careful about getting through the equity details that are appropriate to their particular form of business activities. A positive equity is crucial in procuring the finance.
The notes to financial statements are extremely important. They show the important accounting policies that have been used in preparing the financial statements as well as the related disclosures.
Last Updated on : 1st August 2013