The Financial Statement

Good morning and thank you to everyone who liked and forwarded my post yesterday about the Crestline Culture Fair.  David is going to be very excited he is a star!

I am often asked, “Does my business need to have a financial statement?”  And, like all good professionals, my answer is, “Yes, but it depends.”

A small business can produce more than one type of financial statement.  Typically, the financial statement which people ask about is the Accountant prepared financial statement so this type of financial statement is what I am writing about today.  This is almost universally required when you have a large bank loan.    Your bank likes having a financial statement prepared by someone who understands the value of a well-designed financial report.  Which leads to the most important take-away for today.  Believe it or not…

Your financial statement is actually a marketing piece.

Think about this for a moment.  Your financial statement helps the reader – let’s say a banker in this instance – understand what your business does, how well you perform and the strength of your assets.  While your accounting system can easily produce “Profit and Loss” statements, “Balance Sheets” and even “Cash Flow” statements, these system financial statements are often hard to follow because accounts are not grouped and there is too much detail.  Do you want something that makes the banker smile or frown?

Far too often, the detail begs more questions than it provides answers.  Negative numbers where positive numbers are expected is the biggest issue that is faced.  Expenses that are wildly different from one year to the next, making comparison extremely difficult.  Accounts where the balance remains the same year after year, even though the balance should probably change given the nature of the business.  There are often valid reasons why account balances are different from year to year, but how do you go about explaining this to the bank?

Remember, the bank wants to help your business but your banker and the underwriter must feel that your business is creditworthy.  A well-prepared financial statement can help tell the reader a great deal about the business and how well it might manage the bank’s loan.

The reason your banker typically asks that you have a financial statement prepared by an independent accountant is that accounting professionals are trained in the art and science of financial statement preparation.  We make sure that the Company’s financial statements are easy to follow and understand.  This allows the banker to spend more time on knowing you and your business and less time trying to determine how your cash flows work.

If you are thinking about a bank loan, take a good, hard look at your financial statements.  Do the numbers make sense?  Is there too much detail that doesn’t tell the story?  Then ask your accounting professional to help you make sure your financial statements are ready for the bank.  We also have an Excel Spreadsheet for a very well-designed financial statement.  Feel free to contact me and I can email it to you for you to evaluate.  If you are not working with an accounting professional or would like to have a fresh opinion, feel free to contact us for a free evaluation.  At Currie & McLain, we are here to help you and your small business succeed.

 

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