Collecting data points on businesses is a critical step in applying for financing. The financing options for a business are vast and varied, and each option has its requirements. By understanding the data points lenders look for, business owners can be better prepared to apply for financing and get the money they need to grow their businesses.
This article will look at 10 data points that banks would typically consider when applying for financing.
What Are the Main Points In Business Financial Analysis?
Financial health is a key indicator of business success and potential for growth. You’ll need to conduct a financial analysis to determine how your business is doing. A conclusive analysis consists of five major areas, each with specific data points:
The ability of a business to raise cash to meet its short-term obligations. A healthy business should be able to raise enough cash to cover cash expenses, and no amount of revenue growth can make up for lack of liquidity.
Revenue is the lifeblood of any business, and analyzing historical revenue trends can give you a good idea of where the business is headed.
- Revenue growth: Is revenue growing? How fast?
- Revenue concentration: Is revenue from a small number of customers or products? For revenue to be sustainable, it needs to be diversified.
- The average revenue per employee: This measures how productive your employees are. The higher the number, the more efficient your business is.
A business can be profitable and still not be healthy. To get a complete picture of profitability, you need to look at two key data points:
Gross margin: This is the percentage of revenue that your business keeps after accounting for the cost of goods sold. The higher the gross margin, the more profitable your business is.
Operating margin: This is the percentage of revenue that your business keeps after accounting for all expenses, including the cost of goods sold, marketing, and overhead. The higher the operating margin, the more profitable your business is.
Operational efficiency is a measure of how well your business runs. To determine operational efficiency, you’ll need to look at three key data points:
Accounts receivable turnover: This measures how quickly your customers pay their invoices. You’re looking for a high number.
Inventory turnover: This measures how quickly your business sells its inventory. The higher the number, the more efficient your business is.
Days to pay suppliers: This measures how quickly your business pays its invoices. In this case, you want a low number of days.
Capital Efficiency and Solvency
Capital efficiency is a measure of how well your business uses its capital. To determine capital efficiency, you’ll need to look at two key data points:
Asset turnover: This measures how well your business uses its assets.
Return on assets: This measures how much profit your business generates for every dollar of assets.
To determine solvency, you’ll need to look at two key data points:
Debt-to-equity ratio: This measures your business’s debt relative to its equity. Ideally, you’re looking for a low ratio.
Interest coverage ratio: This measures how well your business can pay its interest payments.
Main Data Points Necessary for Developing an Accurate Financial Statement
Once you have all the above financial data points, you can develop an accurate financial statement for your business. This will give you a clear picture of your business’s financial health and help you decide where to allocate resources.
The main data points you’ll need for your financial statement are:
10 Form Fields To Apply for Business Financing
Now that you know what data points you need to collect, it’s time to fill out the form fields required for business financing. Here are the ten form fields you’ll need to complete:
Through your name it’s how you’ll be known to potential lenders and investors. And it’s what will appear on your financial statements.
Investors need an address to find your business. And it will also be used to calculate your business’s property taxes.
Your business type will determine which financing options are available to you. For example, if you have a sole proprietorship, you’ll have different financing options than a partnership or corporation. A trucking business has different financing options than a retail shop.
Potential lenders and investors will want to know your name, and it will be used to calculate your taxes.
The number of years in business shows how long you’ve been in operation and how well you’ve weathered the ups and downs of business. It will also be used to calculate your business’s tax rate.
The annual sales show how much revenue your business is generating. And they’ll be used to calculate your business’s tax rate.
The number of employees shows how big your business is and how much growth potential it has. It will be used to calculate your business’s health insurance costs.
Potential lenders and investors will want to understand your business and for that they need to know to what type of industry it belongs. Iit will also be used to calculate your business’s tax rate.
The best way to communicate with business owners is usually over the telephone. This will help an advisor fully explain the different financing options available.
A standard email address is the minimum requirement to start the conversation and continue the search for business financing
What Are the Sources of Financial Data?
There are a few sources of financial data that you can use to fill out the form fields required for business financing. Here are a few of the most common:
- Balance sheets
- Cash flow statements
- Income statements
Final Analytic Application of Data Points
After gathering and organizing all of your financial data, it’s time to put it to use. The most common way to do this is by doing a final analysis. The three bases for comparison during the final analysis are:
- Business’s past
- Major competition
- Contractual agreements
Financial analysis is an important part of any business. It is also a major basis for lenders’ and investors’ decisions. And now you know the most important 10 data points to apply for financing. Understanding and utilizing the form fields required for business financing can put your business in a much better position to succeed in accessing the best financing options for a business.
An Outsourced CEO and expert witness, Jim Thomas is the founder and president of Fitness Management USA Inc., a management consulting, turnaround, financing and brokerage firm specializing in the gym and sports industry. With more than 25 years of experience owning, operating and managing clubs of all sizes, Thomas lectures and delivers seminars, webinars and workshops across the globe on the practical skills required to successfully overcome obscurity, improve sales, build teamwork and market fitness programs and products. Visit his Web site at: www.fmconsulting.net or www.youtube.com/gymconsultant.