ValleyEDP Blog

A Beginner's Guide to Company Financial Statments

Wed, 25 May 2022 18:38:27 GMT

Where did the money come from and where is it now?

If you own a business or are thinking about starting a business, you need to understand the importance of creating financial statements. Financial statements provide an explanation of where the money came from, where it went, and where it is now. Without financial statements, you would have a hard time showing that your business is profitable to yourself or anyone else. Lenders, investors, suppliers, customers, employees, competitors, and government agencies all use financial statements to assess the credibility and strength of your company. There are three main financial statements: the balance sheet, income statement and statement of cash flows; let’s look at each one in more detail.

Balance Sheet

The balance sheet shows what a company owns and what it owes at a fixed point in time, today for example. It is built around the Accounting Equation:

Assets = Liabilities + Equity

Assets are resources owned or controlled by a company that provide a probable future benefit, tangible items, like cash, buildings, equipment, and land. Accounts and/or loans receivable are also considered company assets.

Liabilities are obligations that will require probable future sacrifice, either by paying assets or by delivering services. Accounts payable, wages payable, taxes payable and long-term debt are all examples of liabilities. Unearned revenue is also a liability, for example in the airline industry when the airline collects money for your flight before you even get on the plane. They owe you a flight as a service for your payment.

Equity is the amount owners have invested in a company that it can use to buy assets. Equity can be capital – owner’s personal money put into the business or retained earnings - the amount of net income left over for the business after it has paid out dividends to its shareholders.

As you can see from the accounting equation, assets equal liabilities plus equity; put another way liabilities and equity must equal assets.

Although the balance sheet is an effective financial reporting tool, there are some limitations: numbers in the balance sheet reflect the original costs, not current market values and some economic assets are not recorded on the balance sheet – things like brand value, and the balance sheet does not show the flows into and out of the accounts during the period.

Income Statement

The income statement shows how much revenue a company earned over a specific time period (quarterly, semi-annually, annually). It shows the costs and expenses associated with earning that revenue. Revenue , the amount of assets created from the sale of goods or services, earned minus expenses , the amount of assets consumed through business operations, is the “bottom line” or a company’s net income , the net amount of assets generated in doing business. This net income tells you if your company is profitable or if you lost money over the given time period. Net income is the ONE number that summarizes the results of business operations at a company and is a measure of economic performance.

Cash Flow Statement

Cash flow statements report the amount of cash collected and cash paid by a company during a period of time; it’s a report of cash inflows and outflows. Cash flow statements are important because a company needs to have enough cash on hand to pay its expenses and purchase assets. While an income statement can tell you whether a company made a profit, a cash flow statement can tell you whether the company generated cash.

There are three categories on a cash flow statement: operating activities, investing activities, and financing activities.

Operating activities are items like revenues and wages or utilities, investing activities are items like buying land, buildings or equipment, and financing activities are things such as borrowing money or repaying loans.

Although each type of financial statement is created separately, they are all related. Changes in assets and liabilities seen on the balance sheet are also reflected in the revenues and expenses on the income statement, and cash flows provide more information about the assets listed on the balance sheet. These financial statements tell the story of your business for you and your investors and are a vitally important tool in running your business.

Ten Reasons Why You Should Write and Maintain a Business Plan

Thu, 21 Apr 2022 14:39:45 GMT

Why is a business plan so important?

For this month’s blog we are focusing on the importance of developing and maintaining a business plan. Most new business owners think that a business plan is just a necessary part of obtaining funding from a lender, and while that is true, business plans should be so much more than that. A well-researched and thought-out plan should be a vital part of your business’s growth strategy and a living document that you review at least annually as your business develops.

Business plans are an important and strategic tool when starting a business for several reasons, and we are going to outline ten of them here. Developing a business plan will:

1. Help to plot your course and focus your efforts. A business plan acts like a roadmap of where you want your business to go. It provides direction and a path of operation. It allows you to see down the road to your long-terms strategies while hitting short term goals along the way.

2. Prove your commitment to your business. Investors, potential partners, and employees all want to know that you are invested in and committed to the success of the business. Spending the time to research and develop a thorough business plan is one way of demonstrating this commitment.

3. Establish company goals and milestones. The business plan should clearly define the short- and long-term goals you want to accomplish. These goals should be significant, measurable, and attainable.

4. Force you to research and really know your market. What are the opportunities and threats to your industry? Is your industry growing or declining? What is the short- and long-term outlook for the industry? This deep industry knowledge is invaluable and will help you make decisions to improve your market position.

5. Provide information on your revenue model. How will your business make money? This is a critical question to answer in writing for yourself and potential investors. Documenting the revenue model helps to address challenges and assumptions associated with the model.

6. Allow you to better understand your competition and customers. Every business has competitors; either directly or indirectly and you need to analyze the competition in order to understand your company’s competitive advantage. Customers are critical to the success of any business and must be studied and understood. Why do they buy? When do they buy? Understanding your customer will allow you to create the right products and services and sell them cost-effectively.

7. Ensure you document your marketing plan. How will you reach your target customer? What is your advertising budget? What distribution channels will work best for your business? A formal marketing plan is essential to the growth of a business and your marketing plan will evolve so your plan should be revisited at least annually.

8. Assist you in determining your financial needs and start up costs. Developing a business plan will provide you with insight on the financial needs of your business. For example, during your research you may come across equipment or expenses that you hadn’t thought of that could increase your expenses. In addition, lenders and investors will expect a detail list of how their funds will be utilized.

9. Attract investors. Your business plan will be the basis for financing proposals. Anyone interested in investing in your business will want to see a thorough and well documented business plan. They will look for answers to questions like: What are the financial projections? What is the company’s exit strategy? Is there are need for this product or service?

10. Determine, understand, and forecast staffing needs. What will the organizational makeup of your business be? How many employees are needed? These and other questions can be answered in the business plan.

These ten reasons highlight just some of the ways in which a business plan will help make your business successful and why they are so important.

When formulating your business plan, most of the time is spent researching and thinking about how you want your business to operate before you even put your ideas down on paper. A quick internet search for business plan template can get you started, however below is a link to the business plan template used by our Business Resource Manager with her clients.

https://www.score.org/resource/business-plan-template-startup-business

What are the 5 “C”s of Credit, and Why do They Matter?

Wed, 23 Mar 2022 15:04:19 GMT

Valley Partners – Who we are and how we are here to help

Fri, 14 Jan 2022 18:58:11 GMT

Welcome to our new blog!

Happy New Year! A new year means trying new things, so our team is going try our hands at blogging in 2022! To start off our monthly blog series, we wanted to introduce Valley Partners and explain who we are and what we do.

Over the years we have expanded our lending programs and our geographical footprint. We now offer over fifteen different loan programs and provide services to Mahoning, Trumbull, Ashtabula, Columbiana, Geauga, Portage, Lake and Belmont Counties in Ohio: and Lawrence, Mercer, Beaver and Franklin Counties in Pennsylvania. In 2020 we changed our name from Mahoning Valley Economic Development Corporation to Valley Economic Development Partners to better reflect our expanded service area and growing partnerships.

Now that you know a little bit more about where we came from, let’s talk about what we do. Our mission is to continue to be a leader in developing employment opportunities through business creation, expansion, and retention in collaboration with other regional organizations. You’re probably thinking, ‘Ok, but what does that mean?’ Well, it means that we want to help small businesses grow, expand, create jobs, endure hardships, and become successful. So, how do we do this? Because of the long-standing programs mentioned above, and our strong partnerships with banks and financial institutions in our service area, we are able to help businesses by providing a financing bridge that complements traditional financing sources. In addition, we may be able to help businesses that are unable to secure financing through traditional means using our local long-standing in-house loan programs.

So, now that you know what we do; why or when would you call Valley Partners? If you applied for a small business loan and you were denied by a bank, give us a call and we will see if we have a loan product that may work for you (Mario Nero). If you have an idea, but need help putting it on paper, give us a call and we will help guide you through putting together a sound Business Plan (Cassie). If you have a larger small business project such as the purchase of a business, a building or equipment and the bank doesn’t feel comfortable providing all the financing needed, give us a call and we have loan products to help fill the gap (Maureen Stenglein). If the bank needs you to put 20% equity into a project and you feel more comfortable with 10%, call us and we will look for a loan product to partner with your bank and lower your equity injection requirement.

Valley Partners has served our local communities for 44 years, and we look forward to continuing our mission in 2022 and beyond. Join us next month as we present the epic team that makes up VP!