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The Fiscal Check-up-small business financial solutions

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The Fiscal Check-up is one of several small business financial solutions for your company. The information contained in it can be an important part of your loan package or bank presentation to your banker.  

 I want to focus today on your company balance sheet.  Many business owners don't spend time much time with their balance sheet.  The income statement is their primary focus because they want to be sure the company is profitable.

However, analyzing your balance sheet for liquidity, leverage and activity is vitally important.  Here's why:

• If you're going to the bank to ask for a loan, you better be sure that you have at least 20% of your capitalization in shareholders equity. Your bank is willing to tolerate 20-25% equity, but usually not less than that.
• Cash is king in today's economic environment and you want to be sure you have as much cash on hand as possible.
• There are a couple of other measures of liquidity other than cash, working capital (current assets-current liabilities) and your current ratio of at least 1.5-1.  A good rule of thumb is one month's sales in working capital.

Another important piece of The Fiscal Check-up is measuring your activity in the areas of receivables, inventory and payables.

• Whatever your credit terms (net 30), check to see how your customers are paying you and has there been any significant change from the prior year.  Do you have any receivables that should been written down or off?
• Look at how fast or slow your inventory is turning.  Any change from last year?  Any stale or obsolete inventory that you need to deal with? 
• Same exercise with your accounts payable, take your purchases and divide them by your payables to get your average payables turn.  Divide that number in to 365 to get the actual days.  How does that number compare to your actual terms?

Focusing on your balance sheet can give you some insight in to what changes are going on in your liquidity and leverage.  Both items together can make a huge difference in the outcome of your loan request with the bank.

Schedule a Fiscal Check-up today!  If you'd like to see how a Fiscal Check-up might be fit in to your overall financial strategy, call or email us for a free 1 hour consult.