Ray Juncosa, a consultant at Florida SBDC at FIU and an expert in business finance and access capital, doesn’t mince words.
“If you don’t have a grasp of your finances, it will be difficult to succeed,” he tells small businesses.
As a small business owner, you need to understand your numbers and once you do you can better project how your business will do in the future, using assumptions that are credible and based on your existing track record and/or industry research that can be verified, he said. “If available, past performance should always be the basis.”
Remember that bankers are in the business to lend money and get paid back – it’s all about risk mitigation, says Juncosa, an ex-banker who has also taught business courses at FIU for several decades. Bankers typically do an analysis of your last three years of financials, he said. “Those line items tell a story – sometimes it’s a good story and sometimes it’s a red flag.”
Understanding your numbers means understanding your cycle of accounts receivable, operational and cash conversion cycles. Bankers look at these cycles and it could make or break whether you get a loans. Red flags here: When too much money is tied up in inventory that isn’t moving or too much has been bought on credit.
Bankers look at your experience, your credit history, collateral, and your business’ cash flow – does the business generate sufficient cash flow to service the debt? They also want to see that you have skin in the game, Juncosa said.
For more on the basics of understanding your numbers, check out the webinars on SBDC at FIU’s YouTube channel, including a series on finance, and check back often because a webinar on managing your cash flow is coming soon. Here’s a recent webinar on budging and projections featuring Juncosa:
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