How to Get Your Business’s Financial Records in Order for Funding

Understand Your Business’s Financial Health

Before you start thinking about applying for funding, you need to have a clear picture of where your business stands financially. This means reviewing your balance sheet, income statement, and cash flow statement. These three documents show the health of your business in different ways.

• Balance Sheet: This lists your assets, liabilities, and equity. It gives an overview of what you own, what you owe, and how much you’re worth.
• Income Statement: Also known as a profit-and-loss statement, it shows your revenues, expenses, and profits over a specific period.
• Cash Flow Statement: This tracks the flow of cash in and out of your business. It helps show whether you have enough cash to cover day-to-day expenses.

By understanding these financials, you can identify problem areas and figure out how to improve them.

Organize Your Financial Records

To make your financials easy to read and present, they need to be organized. Funding organizations are not going to sift through disorganized paperwork. You’ll need to keep everything in order.

Key steps to organize your records:

• Digitize Everything: If your records are still paper-based, now is the time to switch to digital. Use accounting software to track your finances. This makes it easier to update, store, and share records with lenders.
• Create Separate Accounts: Keep your business and personal finances separate. This not only makes it easier for you to track expenses but also shows potential investors that you run a professional operation.
• Track Your Invoices: Make sure all invoices are sent and tracked. A consistent invoicing process keeps cash flow in check and shows that your business is reliable.
• Reconcile Your Accounts: Regularly reconcile your bank statements with your books. This helps catch errors early and ensures your records are up-to-date.

When your records are organized, you will be in a much stronger position when it’s time to apply for funding.

Maintain Accurate Tax Records

Funding sources will expect to see tax returns for at least the last two or three years. Tax returns give them a clear picture of your financial situation and how well your business is managing its finances.

• File Taxes on Time: Be sure to file your business taxes on time every year. Missing deadlines can hurt your credibility with potential lenders or investors.
• Keep Detailed Tax Records: Make sure all receipts and relevant documents are kept in an organized way. If you are audited, having this information on hand can save you a lot of stress.
• Work with a Tax Professional: If you’re unsure about your taxes, work with an accountant or tax professional. They can help ensure you’re compliant and taking advantage of any deductions or credits available to your business.

Your tax history will often be a major part of the decision-making process for any financial institution. Keeping it clean and accurate helps you avoid issues when applying for funding.

Clean Up Any Existing Debt

Having too much debt can be a red flag to lenders. Before you apply for funding, it’s a good idea to review and manage your debt.

• Pay Down High-Interest Debt: High-interest debt can quickly eat into your profits, so focus on paying it off as fast as possible.
• Negotiate with Creditors: If you’re struggling with debt, don’t hesitate to reach out to creditors. Negotiating better terms could help you manage payments and reduce the burden on your business.
• Debt-to-Equity Ratio: This ratio is often used by lenders to evaluate your financial health. A high debt-to-equity ratio could suggest you’re too reliant on borrowed funds. Ideally, you want a balanced ratio.

Lenders will look closely at your existing debt, so getting this in order can improve your chances of securing funding.

Develop a Solid Business Plan

A strong business plan is essential for securing funding. It shows potential investors and lenders that you’ve thought through the details of your business and have a plan for success. Your business plan should clearly explain how you plan to use the funds you’re requesting.

What to include in your business plan:

• Executive Summary: Briefly describe your business, including the products or services you offer.
• Market Research: Show that you understand your market, your competition, and your target customers.
• Financial Projections: Present a clear forecast of your revenue, expenses, and profits. Be realistic here—overly optimistic projections can raise red flags.
• Use of Funds: Explain how the funds will be used. Whether it’s for marketing, inventory, or equipment, investors want to know how their money will help grow your business.
• Exit Strategy: If you’re seeking investment, explain how investors will eventually get a return on their investment.

Having a well-thought-out business plan not only boosts your credibility but also helps guide you through the funding process.

Prepare Your Financial Projections

Most lenders and investors will want to see projections for the future of your business. They want to know if your business will continue to grow, how quickly, and whether you can pay back any loans or returns on investments.

Key financial projections to include:

• Profit and Loss Projections: Forecast your expected revenue, expenses, and profits over the next 12 months or longer.
• Cash Flow Projections: Show how you plan to manage cash flow. Make sure you have enough working capital to keep your business running day-to-day.
• Break-even Analysis: This helps show when your business will start making a profit. It’s especially important if you’re just starting out.

Keep in mind that these projections should be grounded in realistic data, not wishful thinking. Financial institutions are looking for businesses that can generate consistent profits over time.

Clean Up Your Personal Credit

Sometimes, lenders will look at your personal credit score when deciding whether to fund your business. If your business is new or small, your personal credit history might carry more weight than you think.

Steps to improve your personal credit:

• Check Your Credit Score: Know where you stand. You can check your score for free through several online platforms.
• Pay Down Personal Debt: Just like with your business, your personal debt can impact your credit. Focus on paying down any high-interest debts to boost your credit score.
• Dispute Errors: If you find any errors on your credit report, dispute them right away. This can help improve your score quickly.

A solid personal credit history can give lenders confidence in your ability to manage finances and repay loans.

Work with a Financial Advisor

If you’re not comfortable navigating the world of financial records and funding, it might be helpful to work with a professional.

• Financial Advisors: They can help you analyze your financial records, organize your books, and prepare for funding applications.
• Accountants: A good accountant will ensure your financial records are accurate and help you file taxes correctly.
• Loan Brokers: If you’re having trouble finding the right type of funding, a loan broker can help match you with lenders that are the best fit for your business.

Having a professional on your side can make the entire process much smoother and help you avoid common mistakes.

Keep Your Books Updated Regularly

Staying on top of your finances is an ongoing job. Once your books are in order, the last thing you want is to fall behind again.

• Update Your Books Monthly: Make it a habit to update your financial records at least once a month. This will help you spot trends early and make adjustments as needed.
• Monitor Your Cash Flow: Keep an eye on cash coming in and out of your business. This helps ensure you always have enough liquidity to meet your obligations.
• Review Financials with Your Team: If you have partners or a team, regularly reviewing financials ensures everyone is on the same page.

Ongoing management of your financial records will make future funding rounds easier, as you’ll have everything you need at your fingertips.

Conclusion

Getting your financial records in order is an essential step for securing funding. Lenders and investors need to see that your business is financially stable, well-managed, and has a plan for growth. By organizing your records, maintaining accurate tax files, reducing debt, and having a solid business plan, you’ll be in a much stronger position to secure the funds you need. With careful planning and preparation, you can set your business up for success and growth.