Practical projections of an approximate earning figure are the easiest way to approach lenders for finance related to initiating a small business. Such assessments are crucial for the borrowers, as making the lender believe in their repayment capabilities goes a long way in acquiring the finance.
Complex calculation processes need to be employed if the business is not a small one. Under such circumstances, several supporting calculations need to be considered to determine the cash flow graph.The first step of these support calculations is the estimation of earnings and expenses.
The first few topics that need to be looked into, are gauging the developments in earnings on a monthly basis, the additional costs that may be received with that income.There are some constant establishment costs that have to be looked after, while formulating the cash flow statements, like the rent, employee salaries, council taxes, interest and wear and tear of the factory and the equipments.
The prospective borrower needs to look at them on a monthly basis.Relevant research and the intended marketing set up determine the amount of finance a borrower asks for.
The working capital is an important factor when deciding on finance. Manufacturing and retail businesses call for inventories which include raw materials, half-complete products on the shop premises, and unsold items remaining in the warehouse.
These commodities are considerably expensive. Professional accountants should be employed to calculate these costs. Business capitals, finance, accumulation from credit customers, constitute the cash receipts that are added to the initial cash balance.
The cash payments include business expenditures, buying of assets or consumables in cash, payments made to suppliers of credit, amounts drawn from business, and repayment of debts. These are subtracted from the cash receipts and the cash flow statement is prepared.
The balance sheet depicts the costs incurred in purchasing assets, the statement of affairs which are accounts of the owner’s liabilities and assets. The borrowers need to be careful about getting through the equity details that are appropriate to their particular form of business activities.
The notes to financial statements account for the important accounting policies that have been used in preparing the financial statements and the related disclosures.
Last Updated on : 1st August 2013