One of the reasons I started my business helping women entrepreneurs understand their accounting and finance better was because of the simple fact that women are less likely than their male counterparts to have their business loans approved. This makes it much harder for them to grow and income figures clearly show this. Even though women are opening businesses at almost twice the rate as men, they have a much harder time breaking into the million dollar club.
I decided to go right to the source and talk to a small business loan officer myself for some insight. Although she couldn’t shed light on male vs. female, she made one point very clear – it all comes down to the financial plan. Yes, you need a solid overall business plan, but most denials (to people with otherwise good credit) happen because the financial plan just doesn’t add up.
This is just one of the reasons why no matter what you do or what your skills are – learning some accounting is important for your business. Not only do you need to be able to put up a great financial plan, you also need to be able to discuss it. Why? Because even if you hire a professional to help you, you’re the one who needs to discuss and present it to your loan officer and convince them you know what you’re talking about.
My best advice as a CPA and accountant, who has helped small business for the past decade, is to start by taking a basic accounting course. In addition to helping you obtain financing, it will also help you with countless other areas of your business as well. You can create better budgets, set financial goals, learn how to control your cash flow and so much more.
After learning some accounting, putting together your financial plan will seem a lot less daunting. Here are some other general tips for putting together a great financial plan:
1. Look to your industry. This is what your loan officer will be doing so you should do the same. They will look at key ratios for your industry in particular – if one seems way off, it will be red flag for them.
2. Always list your assumptions. Your financial plan will include sales projections and expense estimates; you want your loan officer to know how you came up with these figures – the more detail the better.
3. Start off by creating two plans – one for what you hope will happen and one worst case scenario. Your final plan should end up somewhere in the middle. This gives you and your loan officer a more realistic and conservative financial picture.
4. Plan, plan and plan some more. Taking on debt is no small task. The better you plan for it, the better your chances of success are not only in getting a loan but with your business in general. Plan everything – what you will do with every dollar, how your cash flows can support the monthly payment, and what that cash will generate in income for you in the future.
If you’re thinking about getting a small business loan just remember this – be thorough, mindful and financially focused!