As the world slowly moves out of the great recession, banks are starting to lend more, but they’re still cautious. The best way to ensure the financing your business needs is to work with your accountant to make your organization more attractive to lenders, which starts with good business planning.
“All organizations should have a business plan — their road map of what they’re going to be doing in the future, especially a new business or an immature business,” says Carol Scott, vice president of business, industry and government for the American Institute of Certified Public Accountants.
Having a plan is critical to convincing someone to loan you money, whether it’s a bank or a venture capitalist.
“If you’re looking for financing, you have to make the business case that, ‘I have a good plan for running this business, and I have a good plan for repaying you,’” Scott says.
Lenders don’t like surprises, so know your needs in advance. Don’t contact your lender a week before you need something, because it will be evident that you are not the greatest planner, making you less attractive to the bank.
You need to be upfront with your accountant and lender about both the good and bad in your business. Being honest about bad information can actually increase your credibility with the lender.
In addition to planning, demonstrating control is critical for impressing banks. The last thing a banker wants to see is that the president, COO or other top executive doesn’t have control and doesn’t have an understanding of the business. The minute there is a suspicion that there is a lack of full knowledge to exactly what’s taking place in the business, the banker will be much less likely to work a financing deal with your company.
One way to reassure a banker is to set up a Sarbanes-Oxley-type control for your organization, even if you’re private. For example, having segregation of duties decreases the likelihood of fraud in the business, and lenders notice those things. Your accountant can help you set up a control environment that is appropriate for your business and attractive to your banker.
Another way to increase your chances of getting funding approval is to have accurate, professional financial statements.
Bankers dislike internal financial statements that appear to be not professionally produced or appear to not be correct or are incomplete.
This is where a reputable accounting firm can help you look more attractive to lenders.
Dealing with the right accounting firm adds credibility to the financial statements and to ‘the ask’ — whatever it is you’re asking for. It’s incredibly important to engage a reputable, well-respected accounting firm because they can assist in getting better terms for your loan, and working with a respected firm adds credibility to your request.
Donny Woods, president of the National Society of Accountants, says, like with approaching lenders, to give your accountant a few weeks’ notice to prepare financial statements.
“You can’t just walk in and say, ‘We need these financial statements tomorrow,’” he says. “We have clients who will do that and think all we have to do is push a button and print report, and it’s just not quite that easy. … When you are doing financial statements, you don’t need to be rushed. You need to be able to have time to consult with the client to make sure that the information you are including is correct and there’s some analysis that has to be done, and it can be time consuming.”
Beyond these things, your history is important when it comes to getting financing, as well.
“They need to watch their cash flow and make sure they pay their bills on time,” Woods says. “They need to have a good payment track record. Those are the things that lending institutions are looking at.”
Scott says you also have to demonstrate the strength of your customers to lenders if you want to get financing.
“You have to have strong customers to have a strong business,” she says. “You could sell product all day long, but if your customers that are buying the product are not in a good position, you’re not going to collect your money.”