IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities.  Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog article has been provided by Eric Moore of Accounting Solution Partners (www.asp-nw.com):

The 9 Accounting Must-Haves for Securing Business Funding

When your business is growing and requires additional capital to keep it moving in the right direction, it will need to decide how to come by that funding. This is a complicated decision that can benefit substantially from the expertise that an experienced financial leader like a CFO or Controller can provide to the business’s owner or CEO. But, regardless of which avenue a business takes, it will need to be prepared to open itself up to scrutiny by funders.

Companies looking for funding need to have the right essentials in place to land the money they are hoping to secure. Whether the funding will come from a bank loan, grant, angel investor, VC or private equity firm, corporate investor, or other type of financier, applying requires the right kind of financial planning and preparation. Simply put, you will need to not only have your financial house in order but be able to prove it! This is where your accounting team is instrumental in the process.

Your Senior Accountant or Accounting Director should oversee the company’s financial preparedness, putting the foundational accounting elements in place to minimize risk to investors and supplying the required documents to prove the company’s financial stability and promising outlook. Typically, your business will need:

1. Clean Books
Having clean books is a non-negotiable for businesses looking for funding. Every type of financier will require that a company’s books be well organized and without error. If your books are messy, the time to get them in order is before you start looking for funding (especially before making really significant funding requests) because no one is going to take your business seriously if its books are outdated or riddled with errors.

2. Accurate Financial Statements
Similarly, businesses need accurate historical and current financial statements to prove their worth to funders. For this reason, many financiers will not even consider a funding request without all the appropriate financial reportsaccompanying it, which includes a:

• Balance Sheet
• Income Statement
• Cash Flow Statement

Regardless of why a company may not have the kind of financials that a financier wants to see (such as data loss, turnover of key personnel, etc.), they are going to assume that the business is trying to hide something if key financials are not provided. If business’s financials reveal something that the owner feels may hurt their chances of getting funding, it’s always better to provide the financials anyways and just explain the undesirable area(s) instead of omitting the financial report entirely.

3. Strong Profitability Metrics
One of the main things that financiers pay attention to when reviewing business financials is profitability-related metrics. They will want to see that investing in the business is going to be a wise decision because their investment will help the company continue to grow, ensuring they can be repaid in the future. This helps them to minimize risk when lending funds or making strategic investments.

4. Comprehensive Internal Controls
Another component of risk mitigation that funders consider is the kinds of internal controls that companies have in place. At a minimum, these should include:

• Segregation of duties.
• Physical and digital access controls.
• Required expense approvals.
• Periodic asset audits.
• Regular account reconciliations.
• Ongoing data backups.

Financiers want to protect their investment in a company, which means that they want to see that the organization is doing everything it can to minimize business fraud, including utilizing internal controls procedures.

5. An Accounting Manual
While it may not be your favorite thing to create and maintain, an accounting policy and procedures manual is an important document to provide as well. As our team explains,

Establishing accounting policies and procedures improves reporting accuracy, cash flow management, and strategic planning. Additionally, formalized accounting policies increase accountability to reduce the risk of fraud, especially during growth periods when new personnel are being hired and the volume of financial activities is increasing.

The manual should not only cover the company’s existing internal controls but also its accounting methods, measurement systems, software, personnel, and disclosures.

6. Complete Tax Records
Companies should be prepared to submit records of their previous tax filings and payments or returns to demonstrate compliance and assure investors that the business is on the up-and-up. While organizations should always keep tax records forever, financiers will likely only request the past three years or so of business tax records (or personal tax records if the business isn’t old enough to meet that threshold itself).

7. Debt Disclosures
Financiers will also generally require disclosures of any business debt – outstanding loans, existing lines of credit, and other financing. Businesses should provide details around their debt with details on repayment terms and interest rates.

8. Detailed Financial Projections
Prospective funders will also probably want to see revenue projections (along with the financial assumptions supporting them) to gauge the organization’s possible future trajectory. While this certainly doesn’t provide any sort of firm assurance that the company will attain those projections, it does give an indication of where the business may be headed in the future to act as another data point in the decision-making process.

9. A Formalized Budgeting Process
As part of the glimpse into the organization’s routine management, financiers may want to see how the company budgets for its ongoing needs. Formalizing the budgeting process that your company uses provides funders with information related to how the business assesses and prioritizes its needs, sets aside cash to meet those needs, and measures spending against the budget.

If you have questions relating to the content of this article, Eric Moore of Accounting Solutions Partners would welcome the opportunity to answer them.  Mr. Moore can be reached at (425) 492-1901 or moore@asp-nw.com.

IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, and real estate communities on subjects relevant to the purchase & sale of privately held companies and family owned businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.