How to make your business attractive for financing Featured

1:06pm EDT May 2, 2011

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.

Planning also makes you look more put-together. Steve Christian, the managing director of Kreischer Miller in Philadelphia, says lenders don’t like surprises.

“Know your needs in advance,” Christian says. “Don’t call your lender a week before you need something, because it’s just evidence that you’re not the greatest planner in the world.”

Christian says to also be upfront with your accountant and lender about both the good and bad in your business.

“A lot of owners aren’t engaged in communicating bad information to the lenders for fear of the unknown, but actually it increases your credibility with the lender,” Christian says.

In addition to planning, demonstrating control is critical for impressing lenders, according to Mike Dubin, Philadelphia office managing partner for McGladrey & Pullen LLP.

“The last thing a banker wants to see is that the stewards of the business — and that could be the president, owner, CFO or COO — don’t have control and don’t have understanding,” Dubin says. “The minute there is a suspicion that there is a lack of control or lack of understanding what’s going on or a lack of full knowledge to exactly what’s taking place in the business, that’s the first thing that will turn off the banker.”

Dubin suggests setting up Sarbanes-Oxley-type controls 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.

“What makes lenders feel good is making sure that the control environment works properly, and accountants certainly have the skill set to be able to help owners do that,” Dubin says.

Another way to increase your chances of getting funding approval is to have accurate, professional financial statements.

“What turns off a banker immediately is when there’s a company that has internal financial statements that appear to be not professionally produced or appear to not be correct or may not be complete,” Dubin says.

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,” Christian says. “It’s incredibly important to engage a reputable, well-respected accounting firm because they can assist in better terms, better conditions, and it adds credibility.”

Donny Woods, president of the National Society of Accountants, agrees but 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.”

How to reach: American Institute of Certified Public Accountants, (888) 777-7077 or www.aicpa.org; Kreischer Miller, (215) 441-4600 or www.kmco.com; McGladrey & Pullen LLP, (215) 641-8600 or www.mcgladrey.com; National Society of Accountants, (800) 966-6679 or www.nsacct.org