Structure Your Business To Appeal To Lenders

How You Can Improve Your Chances Of Success With Prospective Financiers and Partners

That you are able to raise the funds to start your business without borrowing - by drawing on your savings and getting help from relatives and friends - does not foreclose the possibility of needing to borrow money in the future. If your product or service eventually finds acceptance in the market, demand could easily rise above your immediate capacity. If you are lucky to generate good demand for what you offer the market and fall short in supply, the likely response will be to expand capacity. Expansion of the business may require that you seek additional funding, perhaps from your banker or any other lending source.

What Lenders Ask For
When you seek financial assistance from your banker or lending agency, expect them to do due diligence and scrutinise you business. A primary focus in this process will be on how well your business has performed over the period and what its present financial condition is. Problem is: if you've not maintained good records for your business, it may prove difficult to generate information required for this purpose or to provide it in a tidy, satisfactory manner.

When you forward a credit request to your banker or other credit agency, a typical list of immediate requirements to evaluate your request will include:

• Audited accounts for the last (say) three financial years



• The latest Management Accounts of the business



• Cash flow projections for the facility period and the underlying assumptions



• projected balance sheet and profit and loss account for the period of the facility.

If you have operated your business with a fairly good accounting system, you are unlikely to have any difficulty in meeting the information requirements. If you have not created a basic book-keeping system, generating a satisfactory response may be a difficult challenge, leading to avoidable delays and some damage to the credibility of your business.

Major Business Ventures Also Require Due Diligence
When your business seeks to engage in important business relationships, joint ventures and other key B2B transactions, the other party may seek to carry out some evaluation of your business. A prospective foreign partner, for instance, will seek to carry out due diligence on your business. In this instance again, meaningful financial statements, based on some orderly book-keeping system, will play an important role.

What This Means For Your Business
The import of the points made here is that if you seek to operate a viable, growth-oriented and forward-looking business, it will help to anticipate the inevitable demand for business information and take timely steps to institute a basic record-keeping system. Basic here means that the system should at least capture all transactions and summarise the transaction information to provide basic reports like the ones listed earlier.

Small Business Owners Often Miss The Point
Unfortunately, many business people grossly play down on the need for a bookkeeping system that can readily provide financial information and statements. Some of the common reasons are:

• fear over the cost of engaging somebody who is skilled to develop or run a system;



• the desire to maintain privacy which will be lost if somebody else has access to information and records;



• the feeling that activity volume is not enough to justify book-keeping;



• the desire to evade tax by not formalising records;



• lack of understanding of the benefits of an accounting system.

Concern over cost is important, but the cost of not implementing a system will ultimately be higher than the cost of recruiting somebody or hiring a consultant. Whoever works for you can execute a non-disclosure undertaking and the system can always be tailored to the size of your business.

Get Your Act Right
If you fail to install a book-keeping system that can readily respond to your information needs, your business will pay a price, one way or another. Your funding request will fail if fail to provide required financial information. Similarly, a business opportunity you are negotiating with other parties may fail if the structure of your operations cannot inspire confidence.

Besides, a good book-keeping system will provide you critical information for running your business. So, if you cannot retain full-time staff to handle your books, consider retaining this service on a part-time basis. Find an accountant to develop a system for you and possibly update your books, part-time. An equally wise step will be to invest in a computer and suitable accounting software. If properly implemented, automation will ease your book keeping process and easily generate the reports and statements you need. Popular softwares that can serve this purpose include Peachtree Accounting, Quickbooks and M.Y.O.B.