We’re delighted to introduce guest expert, Amy Willingham, Senior Vice President at National Bank of Arizona. Amy assists business clients with a variety of business and personal services, including everything from managing deposit accounts, treasury and digital services, and credit card processing, to investing and lending, such as lines of credit, real estate, and equipment financing.
Here, she shares what you need to know about your business financial statements, options for business financing, common financial pitfalls to avoid, and tips for managing business finances.
Business Finances: Understanding Financial Statements
What do you wish most businesses understood when it comes to their financials?
“Financial statements, specifically Profit & Loss (P&L) and Balance Sheets, are extremely important. They should be accurate and prepared at least quarterly. While many clients focus on revenue, banks look at net income, cash flow, liquidity, and leverage. It’s also essential to pay attention to the balance sheet, not just the income statement. Personal credit history and cash flow are crucial for small businesses, too. Growing too fast can hurt your financials, so track one-time expenses during expansion. It’s also helpful to prepare projections for the next fiscal year, which can be vital when seeking financing.”
Business Finances: Preparing for a Business Loan
What should business owners do to prepare when they’re looking to apply for a business loan?
“When applying for a business loan, start with a solid business plan and prepare financial projections for at least two years, including paying yourself. Check your personal credit history and address any issues. Be prepared to invest 10-20% of your own money toward initial one-time expenses and understand your cash flow shortfalls for the first year, planning how to cover them. Experience in your industry is also key, as is the ability to identify risks and show how you’ll mitigate them. Banks will look at all these factors when considering your application.”
Business Finances: Options for Business Financing
What options are available if a business requires capital?
“There are several routes to consider. SBA loans are great for true startups with no historical financials or younger businesses that still have some weaknesses. Traditional financing works well for established businesses with positive cash flow or for owners with substantial liquidity and personal cash flow. Another option is private equity investment, which can be helpful depending on the business’s stage and needs.”
Business Finances: Common Financial Pitfalls to Avoid
What are some of the biggest mistakes business owners should avoid when it comes to their financials?
“Providing inaccurate information is a major issue. Many small business owners try to handle bookkeeping themselves without understanding the importance of a balanced and detailed income statement. It’s crucial to stay on top of financial reporting, at least quarterly. Don’t just focus on revenue; it’s about cash flow and net income. Personal leverage matters, too, and signing long-term leases for too much space can become a costly mistake.”
Tips for Managing Business Finances
If you were a business owner, how would you manage your finances and cash flow? Do you have any tips for newer business owners?
“Don’t overextend yourself and be conservative with how much you borrow. Make sure you fully understand your expenses and have a clear plan for generating income to cover those costs. Identify your top three risks and have strategies in place to avoid them. Save as much as you can to support both yourself and your business during the first year, and don’t expect to borrow 100% of what you need. Being prepared before approaching a bank makes the process much smoother. I also recommend visiting the SBA website, which has excellent resources and templates for creating a solid business plan.”
Final Thoughts
“My best advice is to plan ahead. Financial preparation isn’t just about numbers on a page; it’s about understanding your business and the market. Be honest with yourself about where your business stands, and don’t be afraid to seek expert advice. Proper planning can save you from a lot of headaches down the road.”
Click here to learn more and contact Amy Willingham, Senior VP & Commercial Lender of National Bank of Arizona.