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What Should Your Next Steps Be When Applying for the PPP?

What Should Your Next Steps Be When Applying for the PPP?

This article was originally written on May 1 and portions have been updated on July 7, 2020, in accordance with the PPP Flexibility Act signed into law on June 5 by President Trump. Additionally, the PPP application extension period being moved to August 8, 2020, for small businesses to apply for the remaining $130 billion of PPP lending capacity. The following information is what we know to be accurate, and it is very likely new information will evolve over time as we learn intricate details of this bill. We will continue to update this article as we learn more.

Many business owners are feeling the pressure the coronavirus has put on the market and their companies. Many have their workforce operating remotely, some with only a skeleton staff, and others having to layoff their workers due to the impact of COVID-19.

In response to the economic hit many business owners are currently facing, the U.S. government responded with the CARES Act, a bill designed to bring health care assistance and financial aid to those individuals, families, and businesses hit hardest by the pandemic.

Read More: A Summary: Coronavirus Aid, Relief, and Economic Security (CARES) Act

One of the significant benefits of the CARES Act for business owners to take advantage of to protect their workforce is the Payment Protection Program (or PPP). With the chaotic rollout of the Payment Protection Program (PPP), many business owners have already scrambled to file the necessary paperwork with their banks, credit unions, and other financial institutions to secure funding. All of which are all backed by the Small Business Administration (SBA). This aid will be critical in helping owners pay their employee’s salaries, benefits, company bills, and make other vital financial payments to keep afloat.

Despite the initial rush to submit the necessary paperwork, there is a waiting period that takes place once all the required documents are filed to when the aid finally comes through. Some owners have already received their funding, while others are still in that waiting period fueling more feelings of uncertainty.

Millions of companies are applying for this aid and loan forgiveness all once. As a result, funding approval is taking much longer than initially anticipated. Not only is the sheer volume of applicants incredibly high, but the process for going through each application is quite lengthy. We recommend being prepared for a waiting period of 90 days or longer.

No matter which scenario an establishment is facing, this growing uncertainty is leaving many business owners wondering what additional steps they should be preparing to take next to solidify the future of their companies while maximizing the benefits of the PPP program.

While millions of eligible companies are applying for forgiveness on their loans during this time, in the meantime, they must utilize these funds the correct way so these companies can maximize forgiveness.

If at any point during this process you have questions or would like to speak to an expert, please don’t hesitate to reach out. Our CFO task force, a highly skilled team comprised of accounting and finance experts, is working diligently to help small to medium-sized businesses navigate their way successfully through this process.

The Signature Analytics promise is to manage your accounting and financial reporting, so you don’t have to. However, during this confusing and stressful time, we are going beyond the numbers to help improve your business performance and help drive strategy and direction.

Critical Next Steps

The experts at Signature Analytics are recommending the following next steps to help comply with the PPP and obtain the most significant company benefits:

1. Have a plan. The 24-week clock will start ticking as soon as those funds are received. What you do with the money during these weeks determines your loan forgiveness, so it’s best to come prepared with a spend-down plan for the PPP funds. Signature Analytics has developed a template to help you plan and track funds used.

Read More: Your Guide To Financial Modeling And Scenario Planning for COVID-19

2. Documentation. Your lender will require documentation to apply for loan forgiveness, so it will be imperative that you carefully track using the funds for qualified expenses. The better documentation and support, the easier the process will be for forgiveness. There are several methods you can use to track your funds. Some recommended ideas include:

  • Creating a separate class in your Quickbooks file
  • Creating a separate balance sheet to track the use of the PPP loan
  • Opening a dedicated bank account used solely for eligible expenses
  • Review and update cashflow scenarios to ensure they are still valid

The Signature Analytics team can discuss which options will be best for your situation to maintain records to substantiate expenses.

3. Monitor. During the 24 weeks, the actual use of the funds must be carefully monitored. In order to qualify for loan forgiveness, at least 60% of the loan must be used for payroll costs. Keeping in mind that various restrictions need to be considered here for highly compensated employees. It is important to stay diligent on the rules for forgiveness and the tracking of the proceeds of the loan.

4. Be cautious. Loan forgiveness can be reduced if either of the following occurs:

a. Employees who make less than $100,000 (annualize) have their comp reduced by 25% or more may cause a dollar for dollar reduction in your forgiveness amount.

– OR –

b. If the number of full-time employees is equal to or less than the same number from February 14, 2019 to June 30, 2019, or January 1, 2020 to February 29, 2020, among other criteria. The Treasury website has the most current information regarding these criteria.

5. Avoid other CARES Programs. Some programs may nullify participating in the PPP, including the Employee Retention Credit and Deferral of Payroll Taxes. It is essential to get guidance from your tax and HR professional in regards to all areas of the CARES ACT.

6. Consider timing. You will want to maximize the payment of qualifying expenses during the eight-week loan forgiveness window. For strategies on how best to pay your bills, please reach out to the Signature Analytics team for guidance.

7. Don’t misuse the funds. While specific guidelines for misappropriation of funds are not currently available, we do know that business owners using the funds for fraudulent purposes will be subject to criminal charges. Additionally, businesses that misrepresent or do not accurately portray their information submitted may be subject to criminal penalties.

8. Even if it’s not forgiven. You are still left with a reasonably good loan. If you received the loan prior to June 5, 2020, there is a 2-year maturity. If the loan was made after this date, it has a five-year maturity. Both options come with a 1% interest with no prepayment penalty. Keep in mind that even though interest and principal payments are deferred for six months, the interest will still need to be accrued during the deferral period for any portion of the loan not forgiven.

9. Contact your lender. Communicating with your lender during this time is a critical step, to ensure both parties understand all of the forgiveness guidelines. Ideally, you will complete the loan forgiveness application found here and submit it to your lender before the October 31, 2020 deadline.

10. Consider the MSLP. The Main Street Lending Program is another new program available for small and medium-sized businesses that were financially stable before COVID-19 took effect. A few of the eligibility requirements include being a U.S. based business with an establishment date before March 13, 2020. You can read more about the criteria through the link below.

Read More: Your Guide To The Main Street Lending Program

Final Thoughts

It is valuable to note that since the PPP was initially launched, guidance from the Treasury Department has continued to evolve, including signing the PPP Flexibility Act on June 5. This is a very fast-paced pandemic and is requiring government agencies and those who support it to think on their feet and provide businesses with relief fast.

For this reason, the information outlined above may change in response to additional guidance. We will do our best to keep you up to date, and you can always contact us at any time for support.

Related Resources:

Most up-to-date resources as of 05-27-2020:

The Importance of Cash Flow Management for Small and Mid-size Businesses

The Importance of Cash Flow Management for Small and Mid-size Businesses

“Cash is King.” We hear this phrase time and time again, but why is it so important for small and mid-size businesses? The short answer – if you run out of cash, your business fails. Seems obvious, right? However, what may not be as obvious is that being profitable is not the same thing as being cash flow positive. In fact, many businesses that show profitability within their financial statements have ended up in bankruptcy because the amount of cash coming in does not exceed the amount of cash going out.

As an example, consider a service company that just started with a new customer. In January, the company provides the service and invoices the customer on January 31st. The company recognizes the revenue from that customer in January, but probably does not collect the cash until February or March. Meanwhile the company had to pay its’ employees on January 15th and the 31st. Thus cash outflow exceeded cash inflow in January. When you multiply this scenario by hundreds of customers, or consider a month with significant customer growth, you can see how the company could run into cash flow issues.

If a company cannot balance the cash inflows with the proper cash outflows then their profits on paper or supposed net-income are meaningless. Firms must exercise good cash management otherwise they may not be able to make the investments needed to compete, or might have to pay more to borrow the money they need to function.

What the Experts Say About Cash Management

Several industry leaders and associations have all found that cash flow problems can be one of the leading causes of failure for businesses…

82% of businesses fail due to poor cash flow management / poor understanding of cash flow.
— Jessie Hagen of US Bank

Despite the fact that cash is the lifeblood of a business — the fuel that keeps the engine running — most business owners don’t truly have a handle on their cash flow. Poor cash flow management is causing more business failures today than ever before.
— Philip Campbell, author of Never Run Out of Cash (Grow & Succeed Publishing 2004)

Insufficient capital is one of the main reasons for small business failure, coupled with lack of experience, poor location, poor inventory management and over-investment in fixed assets.
— U.S. Small Business Association (SBA)

A Case Study: Importance of Monitoring & Analyzing Cash Flow

One of our clients, a media company, believed they needed a significant capital infusion to support their growth plans, but were uncertain when and how much capital would be required. So we generated a detailed five year cash flow projection to forecast and identify all the time periods in which the company’s cash balance would become negative.

Analyzing the company’s cash flow projections revealed that they would require additional capital even after reaching profitability which is actually typical for early-stage companies, or companies in a high-growth mode. The projections also revealed that the amount of capital required to remain cash flow positive was 50 percent higher than they had initially anticipated.

Knowing their true capital needs allowed the company to raise the appropriate amount of capital required to support their growth plans and, more importantly, ensured they would not run out of cash.

Read the full case study here.

Monitoring Cash Flow for Your Business

Achieving a positive cash flow does not come by chance. You have to work at it. Companies need to analyze and manage their cash flow to more effectively control the inflow and outflow of cash. The Small Business Association recommends monitoring cash flow on a monthly basis to make sure you have enough cash to cover your obligations in the coming month.

By proactively getting in front of your future cash needs, you can make the right business decisions to solidify your cash position, and establish a foundation for growth.

Read More: 10 Tips to Help Improve Your Company’s Cash Flow

 

We Can Help

The process of creating and managing to an operating cash flow budget is not intuitive or easy for most small and mid-size business owners. If you need assistance managing your company’s cash flows, developing detailed financial projections, or identifying capital requirements, contact Signature Analytics today for a free consultation.

Download our latest e-book:

What is Petty Cash and How to Manage and Record It

What is Petty Cash and How to Manage and Record It

What is petty cash in accounting? Petty cash, also referred to as a petty cash fund, is a small amount of funds that are kept available for companies to use for small purchases which come up from time to time in the course of business operations. That’s a long way of saying it’s “shoebox money” for expenses which are usually too small to bother using a credit card or writing a check.

Need some postage stamps? Go to the petty cash. Stapler broken? Petty cash. Reimbursing an interview candidate who needed to pay for parking? Petty cash. Pizza for the team working after-hours? Petty cash.

Petty cash funds are small, but they do need to be managed properly. You’ll want to ensure that the money isn’t mishandled, and you’ll want to make sure that those little expenses are accounted for when tax time rolls around. Here’s how you can set up an effective, easy-to-manage petty cash system.

The Advantages of a Petty Cash Fund

Keeping a certain amount of money—say $100—on hand in the form of petty cash is a good idea. A small petty cash fund:

  • Limits discretionary spending and preventing small purchases from snowballing into a significant annual expense
  • Allows staff members to make small, authorized purchases without filling out an expense report
  • Reduces the need for managers to pay for purchases out of pocket
  • Cuts down bookkeeping
  • Provides a convenient source of funds

How to Set Up Petty Cash Funds

Typically, one employee is responsible for controlling petty cash funds. This person is known as the petty cash custodian. The custodian will maintain and document all expenses from the petty cash. By giving this responsibility to one custodian, it means that you will retain internal control over the money.

You can set up your petty cash float – the maximum, fixed amount of on-hand cash – by cashing a check, usually ranging from $100 to $500 depending on the size of your business. Larger companies often have a petty cash fund for each department. The amount you select for your petty cash fund must be sufficient to cover small expenses over a designated period, usually one month. You will also need to set up a petty cash account in the asset section of your financial reports.

The custodian is responsible for keeping the petty cash funds in a safe place such as a lockable box only to be accessed when needed. Even though the petty cash account is small, it needs oversight. When the custodian disburses money from the petty cash fund, he or she will write out a petty cash receipt which will be signed by the employee who is receiving the funds. The receipt will also show the amount disbursed and what the fund is being used to purchase.

Establishing Internal Controls for Petty Cash Funds

When you are setting up a petty cash system for your business, you must establish clear and concise conditions so that the funds are not misappropriated. It’s a good idea to specify what things petty cash can be used for; the petty cash policy should be in writing, and available for review by your management team and your employees. Typically, you will want to limit the number of individuals who have access to petty cash funds.

You don’t need to give every employee access to petty cash, and your petty cash custodian should be the only person permitted to disburse it. It should be up to the custodian to decide whether each expense is appropriate based on your company’s petty cash policy.

Make sure that there is a reasonable amount of money in the petty cash fund and that it is enough to meet your company’s needs. Always make sure that the custodian replenishes the fund when it is getting low – making sure, of course, that you know where and how that money has been spent.

How to Manage Petty Cash Funds

Even though the expenses running through your petty cash funds are small, they will still need to be managed properly. Tracking all of your petty cash expenses as part of your bookkeeping system ensures that all tax-deductible expenses are captured.

Managing your petty cash funds begins as soon as the first check has been cashed to create the petty cash float. For example, if you have decided on a petty cash fund for $100, your petty cash account book entry will show a debit of $100 to your petty cash fund and a credit of $100 to your bank account. Every time your custodian disburses money, he or she will fill out a receipt so that at any point in time, the total of the money and receipts in the petty cash box will add up to the initial amount of the petty cash fund.

As the balance remaining in the petty cash fund becomes too small to be of use, the custodian should tally and summarize the receipts and exchange them for a new check made out to cash to equal the total of the receipts. When the check is cashed, the funds will be added to petty cash so that its original level is restored.

If the custodian finds that the petty cash fund is too small—this is the case if the fund needs replenishing every few days—then he or she may increase the float. This would then be recorded in the petty cash accounts. On the other hand, the custodian may find that the fund amount is excessive. In this case, the surplus petty cash should be taken from the fund and deposited in the company bank account.

Petty Cash and Taxes

If this sounds like a lot of work just to maintain a $100 fund, there are good reasons for it. Typically, all or most of your petty cash purchases will be for business expenses, which means they will be deductible from your business taxes. That is why it’s important to keep a record of each expense. If you fail to document them all, you will not be able to deduct them from your business expenses for a purchase. You can find out more information about the requirements for petty cash and recordkeeping by reading IRS Publication 583.

Petty cash is a useful tool for small and medium-sized businesses as it keeps money available for small expenses. Recording those expenses helps to budget for future ones, and even though those might be small, they add up. When all disbursements are recorded diligently by the petty cash custodian and the money is replenished on a regular basis, using petty cash can be a real timesaver.

We Can Help

Of course, overseeing a petty cash fund is still going to add another layer — albeit a small one — to your accounting function. Contact us if you need help establishing a petty cash fund and its conditions.

What Are The 4 Financial Statements You Need to Grow Your Business?

What Are The 4 Financial Statements You Need to Grow Your Business?

It’s not until you start filling in the terms and numbers of your business plan that it shifts from the conceptual to the actual. While your marketing strategy is an interesting read, it’s the figures on the bottom line that will help you get a business loan or investors.

To justify your plan with good numbers, you need a distinct section in your business plan, where you can lay out your financial forecasts and statements. The financial section of your business plan is one of the most critical parts of the whole document if you wish to acquire funding.

The Purpose of the Financial Section of a Business Plan

Before you start organizing your business financials, it’s important to be aware that this is not the same as keeping accounts. There is a significant difference. Accounting takes a historical view of financial information, whereas financial business planning looks to the future. The financial section of a business plan has two primary purposes.

The first is to attract investors. They will want to see your numbers growing and that you have an exit strategy in place for them when they can make a profit. A bank will also want to view these figures, so they know you will be able to pay back your loan. The second purpose of the financials is for your benefit. It gives you a dependable guideline to see how your business is going to do.

What to Include in the Financial Side of a Business Plan

The financial side of a business plan includes various financial statements that show where you want to take your company. This plan helps lenders, and investors see how much financing your business needs and if it is worth their while getting involved.

There are four financial statements that are essential to include in a structured financial plan. These can help you arrange your financial projections for the next three to five years. Your financial plan should consist of the following financial statements:

1. The Sales Forecast

A sales forecast can be laid out in a spreadsheet as a projection of your sales for the next three to five years. Use different sections for each sale type and a separate column for every month for the first year, and monthly or quarterly columns for the next three to five years.

The most definite way to indicate your sales forecast is by providing separate blocks for pricing, unit sales, calculated sales, unit costs, and unit cost of sales. Including all these figures will help you calculate your gross margin, which amounts to sales less the cost of sales. It gives you a useful figure for comparing your forecast with other industry reporting ratios.

2. The Expenses Budget

An expense budget helps you figure out how much it will cost you to make the sales you forecast in the previous section. To make it completely clear you are going to need to differentiate between fixed costs (such as utilities, rent, and payroll) and variable costs (such as marketing costs).

Again, don’t forget that this is a business statement, not accounting, so you will have to estimate things like taxes and interest. Keep it as simple as possible when making your operating expenses estimates. For example, to calculate your expected taxes, multiply your estimated profits by your tax percentage. To evaluate and determine interest, multiply your estimated debts by an interest rate.

3. Income Projections

The income projections statement is the section where you list your projected profits and loss for the next three to five years. You can use the numbers you’ve included in your sales forecast and expenses to help you calculate these figures. You’ll also have to assess your assets and liabilities which are not covered under your income projections. You may wish to create a separate statement for these or include them here. Think about inventory, money owed to you, and assets such as equipment. Under liabilities, you will list any possible outstanding loans and any other bills you may not be able to pay.

4. The Cash-Flow Statement

The cash-flow section of your financial business plan indicates the movement of money in and out of your business. This section is based on a combination of your sales forecast and balance between your projected income and expenses.

If your business plan for the year is to start a new business, you will need to create a cash-flow projection. For an existing business and most clients we serve, you can base your cash-flow statement on balance sheets and profit and loss statements from previous years. Be realistic about the time it takes for your invoices to be paid in full. Being practical in this way can ensure you have no surprised down the road; primarily if you rely on invoices to pay 100 percent of your expenses.

Other Statements for a Financial Business Plan

There are other statements that you can include in the financial section of your business program. While not essential, they can be beneficial for you as you grow your business. These include:

The Personnel Plan

You may decide to create a personnel plan. By creating this plan, you can describe the different members of your management team and what they offer the rest of the workforce regarding management, training, and knowledge of your market. The plan should justify their salary and/or equity share.

This financial condition section can also be used to list each different department in your company, if applicable. You should even name members of staff or departments that you have yet to hire.

The Break-Even Analysis

The break-even analysis is a calculation of how much your company will have to sell to cover your expenses.

For example, consider a landscaping business. It will need to be ready to function with all the vehicles, equipment, business cards, marketing, and all the landscapers working to generate income. If you were to only landscaped one garden, your business would be operating at a loss. You may not even make enough money to pay for gas and materials, let alone wages.

Creating a break-even analysis can give you an idea of how many landscaping jobs you would need to do to cover your expenses.

You may feel overwhelmed at the prospect of creating a financial plan, and it can undoubtedly be challenging. But it is essential that you fully understand each section. As a business owner, you may consider hiring a bookkeeper to handle your account once your business is running. You will need to understand your business’ financial statements and use them as a basis for making decisions about your company. Numerous available software programs can help you put it together and lighten your load.

In the long run, the financial statements in your business plan will outline the growth and potential of your business. And once you can show where your financial performance figures are coming from, you will significantly increase your chances of getting funding from lenders or investors. So, don’t skimp on your financial statements, take the time to learn how to do them properly, and get them right. It will be worth it in the long run.

We Can Help

If you need help determining which financial statements you need or require consultation when setting up a business plan, we can help. As an outsourced accounting firm, we provide ongoing accounting support and financial analysis to small and mid-size businesses. Our team of highly experienced accountants will act as your entire accounting department (CFO to staff accountant).

We complement and work alongside your internal staff to provide ongoing accounting and finance support for your business. These areas are necessary to effectively run your company, analyze operations, and guide business decisions. Contact us today so we can get started.

8 Things to Consider When Planning an Annual Budget for your Business

8 Things to Consider When Planning an Annual Budget for your Business

Crafting an annual budget is one of the most important financial aspects of a business, but often gets overlooked.

Business budget planning is an essential task that is frequently neglected at small and mid-size companies. So why is it so important? Well, mostly because it is a process that prepares your company to answer critical questions about what the next 12 months will look like:

  • What are you projecting sales to be next year?
  • Are you expecting margins to improve next year?
  • Do you plan to hire additional employees?
  • Will you have any significant capital expenditures soon?

These questions (and many others) are typical of investors, financial institutions, potential strategic partners, and financial buyers. Every business, regardless of size, should have the answers to these questions to be able to plan the annual operating budget accordingly.

Having a chief financial officer, or CFO, as part of your company’s C-Suite executive team can be an asset in this process.

A CFO will have access to and be up to date on the most recent financial data pertaining to the company. These resources can help the company craft its budget, as well as short and long-term financial goals. Strategic budgeting is a skill that any good CFO will have in their arsenal. It’s just a matter of working as a team to bring all the relevant information together to plan for the future.

Read more: What CEOs Need From Their CFO

If you are overwhelmed by company budgeting planning, don’t have a CFO, or don’t know where to begin, below are some tips to help you get started:

1. Consult All Departments

The annual budgeting process should not be completed behind closed doors by one member of the accounting or finance team. Instead, all the departments within the company should be part of the conversation and provide feedback, insights, and expectations for the following fiscal year.

Who should contribute to the conversation? Be sure to loop in:

  • The sales team: they can assist with realistic revenue assessments
  • The manufacturing or service team: they can advise on costs of delivery and any large purchases required to update machinery
  • The research and development team: they can discuss expected expenses as well as the timing on any new products anticipated
  • Any other departments who can add value to the conversation

It is encouraged to incorporate feedback from each department as the results are much more likely to be accurate. Therefore, project completions are possible for the upcoming fiscal year. Too often, companies that do complete the annual budget planning process estimate an overall percentage increase over the prior year’s actual income – this is something that should be avoided.

2. Estimate Revenues

Expected sales have a significant influence on costs, including employee headcount, but it can be very challenging to make projections accurately. Here are some ways to come up with the best estimate:

  • Consider the recent monthly growth rate experienced by the company and decide if it can be continued.
  • Review industry guides and other expert publications that focus on your industry.
  • Review financial information from a number of your competitors, if available.
  • Communicate with your current customers to better understand their expected needs of your product or service.
  • Discuss the expected sales with your sales department and set expectations to help determine compensation for this team.

3. Determine Expenses

Once the expected revenue figures are estimated, the focus can shift towards expenses. Here are some considerations:

  • Some costs relate directly to revenue, whether they be inventory or employee services. Typically, the gross margin of a business does not fluctuate substantially unless new products are developed, inventory prices change, or inefficiencies are identified within the manufacturing process. Use this time to challenge your employees to identify cost savings related to the delivery of products or services.
  • Other expenses are fixed costs such as rent, insurance, equipment leases, and certain other services purchased. These expenses may be easier to estimate; however, you should consider reviewing the policies in place, especially around insurance. Use this time to determine if better insurance rates are available or if different coverages would be more advantageous.
  • Employee compensation should always be established to be in line with revenues and related growth in the coming year. Many companies believe that all employees require annual raises, but if the results show a contraction in the business, then it may not be reasonable. Consider tying aspects of compensation to the growth of the company. With today’s inflationary trends, make sure you include cost of living wage increases for your employees in your budget and projections as well.
  • Along with compensation, estimating employee headcount is a critical aspect of the budgeting process. It is important to identify when you will need to hire, how long that hiring process takes, and what experience level would optimize the operations.

4. Identify Capital Expenditures

Often not considered in the budgeting process are those large or expensive purchases which are vital to the continued success of the business. These may include new computers, systems, machinery, vehicles, furniture, etc. It is essential to keep in mind that each new employee hired will likely require a certain amount of capital expenditure.

Investments in equipment or processes that are directly related to your product or service should also be considered. Will you need to purchase any new materials next year? Is there old equipment that needs to be updated? Avoiding investment in equipment can impact your output, quality, or delivery timing, which can directly impact your revenues.

5. Calculate Cash Flow

While putting together a projected income statement can feel great, it is just as important to calculate the expected cash flow of the business.

Your company may pay bills faster than customers pay theirs. You may need to purchase inventory well in advance of sales if acquisition time is significant. In cases such as these, a cash flow statement should be created using the income statement as well as AR/AP turnover rates and other metrics from the balance sheet.

Read more: These Are the Four Financial Statements You Need to Grow Your Business

6. Be Conservative

While it may seem advantageous to show investors that the company will significantly grow, it’s a possibility that results may disappoint. Even worse, business decisions may have been made using such projections (aka best guess scenarios). When in doubt, it is a good idea to be more conservative and leave some room in the projections in case of emergency, unforeseeable large expenses, or a drop in revenue and sales.

7. Start Early

Businesses should begin the annual budgeting process three to four months before the start of their fiscal year to allow sufficient time to craft a detailed estimate before the year ends. However, the annual business budget should be monitored and updated on an ongoing basis. For this reason, it’s never too late to get started.

8. Monitor, Evaluate & Reforecast

Once you complete the budgeting process, the biggest mistake you could make is to file it away only to pull it out again at the end of the following year.

A budget should be monitored monthly, or sometimes weekly for smaller companies. Budgets should be edited if circumstances change, like bringing in more fruitful accounts or losing critical customers.

If you have a CFO on your team, they can help facilitate a strategic forecasting process that extends beyond the annual budget and encompasses more of a three-year plan. This can help push your company to think about future business decisions and goals.

Furthermore, budgets should always be compared to actual results to understand why there are differences. Doing this will help monitor spending money throughout the year and help management make important decisions in relation to the business. Put these tips into action and learn how to prepare an annual budget with our in-depth guide.

We Can Help

Signature Analytics will help guide your company through the annual budgeting process. We will work with your management team to create a budget for your business and monitor that budget throughout the year.

This would include analyzing the budgeted versus actual results quarterly and helping forecast accordingly. We can also perform industry and economy reviews to assist with the forecasting process and provide benchmarking data.

If you want assistance creating (or improving) an annual budget for your business, contact us today for a free consultation.

5 Reasons Your Business is Rejected for a Loan

5 Reasons Your Business is Rejected for a Loan

Most companies are looking to grow and expand. But the process of taking out a business loan isn’t an easy journey down a well-paved road.

More than one-third of all small businesses who apply for a loan are rejected. And most don’t understand why. Here are five reasons why your business might be rejected for a loan and what your company can do to increase your approval chances.

1. Not Supplying the Correct Documentation

Let’s face it; paperwork can be overwhelming and confusing. However, it shouldn’t be the reason a business gets denied a loan. Sadly, it is one of the most common causes of rejection.

Not submitting the correct documentation for a credit renewal will increase a company’s chance of getting rejected. Here are the types of documentation you should expect to present:

  • Annual financial statements
  • Tax returns and previous year data
  • Personal financial statement from the guarantor (who is typically the owner)
  • Financial projections for the next 1-2 years, especially when an increase is needed
  • Loan contracts per the loan agreement. This shows the financial health of the business and eliminates loan defaults or lump-sum repayments occurring at the last minute, which can cause financial stress.

If your business plans to ask for a loan, having these documents prepared can increase the chance of being approved and ensure your line of credit is revolving per plan.

2. Lack of Cash Flow

Cash flow is the very first aspect that a lender looks into when considering granting a company a loan. Banks want to see that a business has enough money to make the loan payments as well as other expenses like rent and payroll. If a company has irregular cash flow or if they experience seasonal variations, these could be a red flag for a lender.

A lack of cash flow is one of the primary sources of business failure. If a lender rejects you for a loan and states cash flow being the reason, it should be a signal to take a hard look at how cash flow is being managed. Implementing accounting software is a good place to start. If that seems overwhelming or if you don’t have the manpower, then hiring an accounting firm could be a helpful alternative to get back on track. Also, be diligent about collecting payments due from customers—don’t let invoices drag out to 60, 90, or 120 days past due. The more proactive you can be, the better off your business will be.

3. Poor Credit or Lack of Credit

The National Small Business Association published a Year-End Economic report for 2017. The report stated that for businesses for which capital availability was an issue, 31% reported they’d been unable to obtain the funding they needed.

Business credit is important for small companies as it enables them to obtain the capital needed to grow. This additional capital might be used to purchase additional inventory, hire employees, and cover other necessary expenses.

For example, a company with a FICO score under 640 is likely to be rejected for a loan. If that company needs a loan, there are a few things they can do to improve their credit score. They can start by paying bills on time, opening multiple credit cards, keep revolving debt low, and regularly monitoring their credit report.

4. Haven’t Been in Business Long Enough

The rate of small business failure may be shocking to learn. Here are some quick facts:

  • 20% of businesses will fail in their first year
  • 30% of businesses will fail in their second year
  • 50% of businesses will fail in their fifth year
  • 70% of businesses will fail in their tenth year

There are many reasons why a business might fail, which is precisely why banks want to see a track record from a company — to prove that they can pay back a loan.

Lenders want to see that a business has experience in the market and brings in substantial revenues. Of course, it’s possible to have a successful and thriving business without having been operating for very long. In this somewhat unique situation, it would be a matter of finding the right lender. If a business owner fell into the more common category of not being incredibly successful from the start, they can use personal assets as collateral to secure cash and have a better chance for approval.

5. Lack of Collateral

Small and midsize businesses can be seen as a risk to many lenders. While not all small business loans will need collateral, it would 100% be required if a business is directly borrowing against an asset. Without secure assets such as equipment, inventory, or property as collateral, your business loan could be denied.

Similar to a business just entering the market, leveraging personal collateral can demonstrate that your dedication to the business while also reassuring the lender. Putting up personal assets, like a house or car, as collateral can lower the interest rate on the loan. If personal assets are not an option on the table, you may need to look into alternative sources of financing.

The process of taking out a business loan can be tedious and complicated for many small and midsize business owners. While these are only some of the possible situations your company might face when seeking a loan, you can always contact Signature Analytics for help. We can assist in securing new lending or ensuring your line of credit is revolving per plan, so contact us today.