Do you have enough working capital to make the necessary investments to grow and expand? Understanding the strength of your business finances helps to assess your financial situation both now and in the future.
Checking your bank accounts, and your income statements is a great place to start. Thorough analysis of all of your business financial statements involves a little more work. How does your cash flow look? And what about your balance sheet? In the past we have established that there are many consequences attached to neglecting your working capital.
Keeping up with the constant flow of financial information may be a little more complex than it appears on the surface. Comprehending the state of your business finances enables you to evaluate whether you can take on more business. Investors require financial statements to make calculated investment decisions, and banks need them to assess the strength of the business when it comes to lending money. Dunn & Bradstreet does a great job of explaining why we have financial statements and how they all work together.
Your business profitability can be seen in your income, or profit and loss statement. It provides a good overview of how your business is performing, and allows you to make informed decisions about how to apportion funds. It also helps any type of investor assess the level of risk when it comes to lending money. Your balance sheet is also used, and will show your business assets and liabilities; what is owed and what you owe. Combining an understanding of your business finance statements with a stellar business plan will help when it comes to applying for most traditional forms of financing.
When examining your income statement, you will see your profit, but will not see those accounts that are outstanding, or even delinquent. This is why a cash flow statement is so important. If you discover too many outstanding invoices, it may suggest that you have extended lengthy credit terms to customers. This scenario can seriously damage your cash flow. It may be that you have access to working capital that is tied up because your customers do not have to pay the minute they receive products or services. This can make it hard to maintain a healthy cash flow.
If you have a grasp of your business finances, but are struggling to maintain cash flow because of the credit you have offered customers, you may want to look at an alternative commercial business financing option called Invoice Factoring. It does not rely heavily on a history of business finance statements, but on strong accounts receivable. It is also a great option if bad credit or lack of credit history is an issue. Factoring your invoices offers a financial solution that can answer the cash flow dilemma. However, careful management of your business finances helps to monitor and contain costs, as well as effectively manage growth so that profit margins remain healthy.