Financial Analysis

Financial Analysis

Karissa Johnson

BUS 368 Venture Capital

Instructor: Monique Smalling

December 2, 2013

Financial Analysis

All businesses are aware, it is a vital part of operations to always know their financial position. Creditors and stockholders will need to see accounts and statements as proof that a potential client is correctly and efficiently managing their company’s finances. A business will need to have current financials and a dependable set of forecasts and plans for the coming year. Many investors also require financial statements to be audited. In this case, you will need to hire a certified independent accountant or accounting firm to evaluate your statements before you can even finalize your loan application.

When organizing this information, the best place to start is by creating a balance sheet detailing your assets and liabilities. This will give you a better sense of how much money you should be able to borrow and whether you have enough liquid assets, which can be turned into funds for investment in the business. Other fundamental financial statements are profit-and-loss accounts and cash flow statements.

With these statements you should be able to decide how much money your business really needs and rationally estimate how much money you could possibly be able to borrow. When doing this, you need to ask yourself what you need the money for: purchasing inventory and capital stock, or paying payroll, overhead, and rent? Your estimates must be conservative and reasonable. One mistake you need to avoid is to ask for more money than you can afford to repay. Your financial statements is proof that your business will produce enough cash flow in the future to allow you to repay the loan on time. Repayment of the loan will be made is critical; you must prove not only that is your cash flow sufficient, but that your business shows effective management, your orders with buyers are sound and secure, and that proper risk management techniques...