The balance sheet is a photograph of your company in the relevant period. You have this photo taken 4 times every year. As the boss of the company, you pose, the accountant adjusts the lights and the financial advisor takes the photo. The important thing here is to reflect your real smile without using photoshop techniques.
As a company owner, before you share your financial data with financial institutions, you should not only leave the work to your accounting staff and financial advisor, but you should have a basic understanding of certain items on your balance sheet. This requirement allows you to clearly express the questions you will be asked to answer in the interviews you will hold before the banks and shows that the company owner has a good command of his/her business in terms of financial data information.
- Does the firm make a profit from its operations?
- Is net working capital positive (Do short-term current assets cover short-term liabilities?)?
- Total borrowing ratio by equity structure
- Increase/decrease in Buyer - Seller items
- Increase/decrease in cash balance
- Structure of bank borrowings (Short-term bank borrowings - Long-term bank borrowings)
- Reconciliation of bank loans with memzuc records
- Capital structure and Equity adequacy
- Total indebtedness ratio by turnover
- Inventory turnover
- Receivable collection period
The answers to these questions must be available to the company owner for the initial assessment of your company. Thanks to the control of this summary information, especially problems arising from incorrect and/or incomplete records can be identified and necessary real corrections can be made.
Incomplete recording of buyer-seller items that we encounter especially in interim balance sheets, failure to process bank risk records correctly, failure to record financing expenses on time both misleads you as the company owner and causes you to present unrealistic information to financial institutions.
No matter how well you think you are doing your job, “It is not how you are, but how you look.” For this reason, tell the banker what your company's balance sheet means instead of listening to the banker.
As a company owner, before sharing your financial data with financial institutions, you should not only leave the work to your accounting staff and financial advisor, but you should have a good command of certain items on your balance sheet.