How Important is Bookkeeping in Managing your Business Finance?

Before you get into the hype of your business financing success, you need to ensure that you are aware about the ins and outs of your money. In every financial management, there's a need to apply Bookkeeping.

Bookkeeping refers to making a record of the monies received by a business as well as the monies paid out. It encompasses money a company owes to vendors, employees, tax agencies, contractors and any other individual or entity. Likewise, accurate records of amounts owed to a company by outside individuals and organizations are also recorded in a company's books. In layman's term, it is simply keeping track of the money that comes in and the money that goes out.

It is always a very good idea to properly manage your financing and implement effective small business finance accounting system right from the moment you start your business. When your business grow, you will realize how easy it is to handle your financing because you start your financing management the right way.

The Difference Between Good Debts and Bad Debts

Not all debts are created equal. There is good debt and bad debt. Let’s take a good look on the difference between a good debt and bad debt.

A Good debt is a debt that is based on assets. These assets are usually earning income for you at a rate greater than the cost on the debt. Example of Good debt is Hurdle Rate. A hurdle rate refers to the cost of capital. Say for example, your hurdle rate is 15 %, then you will only consider purchases or investments that is more than 15 %.

A debt is considered a good debt if you truly need it but cannot pay for it yet. You must also consider loans that you can only afford to pay every month.

Bad Debt on the other hand is a debt that does not create an income greater than the interest of the debt. If you’ve taken things that are not necessary and cannot afford, then it can also be considered as bad debt. Mostly, these purchases are not producing income that is greater than the interest, or worst don’t produce return at all. You will know it’s a bad debt if it doesn’t help your business to grow.

Your business financing solely depends on how well you can determine between a good debt and a bad debt. Avoid bad debt and embrace good debt, this will surely give you a springboard to reach the next level of success for your business.

2009 Business Financing Trends

If we are going to look back at the year 2009, we can clearly see what is happening on business financing. Out of what had happened, here are the trends we see at business financing right now.

1.Capital For Small Businesses will continue to shrink

Lending institutions will continue to reduce the funding that they will grant to startups and small businesses. Capital will be tight for business operation. If you wish to expand your business, you need to finance it on your own or else, it will not be materialized.


2.Investments will be trapped

The capital will be locked in startups without profit. This will lead to less capital available for new ventures. You should continue increasing the value of your business until money can freely flow.



3.Internal Financing can be used more creatively

More business owners are striving to unlock their own capital. New methods of internal financing will arise.

Spotting the Right Lender

The biggest issue when looking for a financer for your business is if you are selecting the right bank or lender. Not with a desperate move, you must select a lender which you know is capable of providing your startup fund in a legal way.

Start with financial institutions that already have your information. Share your information to these banks and let them review your business background. Once you are ready to get your business fund, start with banks who have reviewed your business financial information. Start with institutions that you already do business with. They already knew your financial status, your history and they are more likely to give the fund that you needed.

You can also go to somebody who wants the business. Look for company or investors from the business section of your newspaper for financing offers. They are the one who are actively looking for small business loans; oftentimes it is easier to process the loan with them.

One of the best options is the credit unions. These institutions are smaller, you have the best possible opportunity to talk directly with higher-level decision makers. With larger banks, the process is a little bit difficult because they are implementing more rigid rules and processes associated with small business loans.

Collateral for Business Loan

Being a candidate for a business loan may somehow drive you desperately. If you are into applying loans, you can think and do everything just to please your financial lending institution. One of the most effective ways to persuade your lender is to present valid and credible collateral. Through this, you can ensure your lender that you are capable of paying the loan. The following are the most commonly used asset for collateral. If you are thinking of applying for a business loan, you might want to consider picking the following options as collateral.

1.Real Estate

Real estate can be your home, your business property or any other property that you owned. This is indeed the most common collaterals used by loan applicants.

2.Equipments

This should be generally expensive and specialized. You cannot simply use your Home computer or electronic equipments.

3.Bonds or Stocks

You can also use this as collateral for your business loan. If you are going to use stocks as collateral, you don’t need to have credit checks.

You should also note that banking institution will rarely give you full market value of your assets. They are into loaning money and they will earn from it by the interest and selling collateral assets is not their business, so basically the collateral is not their concern.

Business Loan Denied?

Starting a business is just like starting a car. A car won’t start without a fuel, the same is true with business, you cannot start a business without a capital. Most often than not, small business starters turn to banking institutions for their capitals. Getting a business loan from bank is not as easy as withdrawing money from your ATM account. You should undergo rigid interviews and discussions to persuade the lender. What if you end up with nothing? You have tried your best to convince the lender but you’re request has been denied. Are you going to give up?

Here are some alternatives that you might want to give a try after being refused:

1. Grants and Bursaries

I know that it is difficult to get this option but sometimes this may apply. Grants and Bursaries may apply if you are qualified for this, the criteria range from extracurricular involvement, leadership, etc. This option is actually offered to individual based on their financial need and this is not meant to be replaced, instead it will act out to supplement the fund needed.

2. Family members

If other people can’t help you, try to consult your family members. Seek help from them and ask for contributions to support you to start your small business. Family member often don’t have money to offer to other members but this is worth the try. They may have other connections and may help you to get to the right person.

3. Instant approval credit card

Use credit card as an alternative then. You can borrow the fund from credit card provider to start your business. With your credit card, you can have the goods you needed and start selling. The only disadvantage of using credit card is the high interest rate.

If you are determined enough, you can think of some other way to get the amount you needed to start your business.

Considerations before getting a Business Loan

Planning to start a small Business is great. However, the idea of needing a capital when starting a Small Business is way too complicated. The first thing we consider to give a start-up is a Business Loan, but beforehand we need to be clear with our plans because you must present this well to the lender, otherwise you will end up with empty pocket.

Lenders have the same expectations to all Business hopefuls, whether this lender is a friend or a banking institution. For us to successfully convince the lender to fuel our business startup, we need to meet those expectations.

How to increase our chance of securing a small business loan? First thing you should do is to put yourself on the lender’s shoes. If someone asked you for a business loan, these two questions would probably pop out of your head.

1. What is the reason why you wanted the money?

2. What are the chances that you could repay me in FULL and in DUE TIME?

Now, switch yourself as a borrower and answer those questions.

Of course you can only answer those questions if you have prepared enough. You should have the business plan and the cash flow projections so that you can assure the lender that the money will go to a valuable plan and that you could repay him in full and in Due time. The key element is PREPARATION. You need to take extra effort to gather the documents and let these documents to the talking in persuading the lender. You have to assure the lender that you are a good risk.