By Nanette Davidson, Vice President, Business Banking Officer at Rockland Trust

 The day-to-day operations of your business may leave little time for in-depth planning and analysis. However, a quick temperature check of your business’ financial health can help you confirm that you are on the right track for meeting your goals.

Cash Flow

Managing a cash flow document is a great way to keep your finger on the pulse of your business and identify any potential issues before they happen. Cash flow is anticipating income that you have coming in versus the money you have going out in terms of expenses. When forecasting your income and expenses, it’s important to consider when you will collect payment or need to pay vendors. A credit business, for example, may need to pay vendors before they collect payments.

This should be a living document that you update regularly to help you keep ahead of your business needs. Mapping out cash flow for a 12-month period can help you identify shortfalls – or when your expenses exceed cash coming in, before they happen.

Forecasting can also help you anticipate when you may need credit, meaning you can work with your bank ahead of time, rather than ad hoc needing to rush to get a line of credit last minute.

Finding an Institution That Understands You
A good relationship with your bank can be important to your business’ financial health which is why sometimes the best time to approach your bank is before you need them. Never be concerned about asking questions, such as what information is necessary to open a line of credit or secure a loan. The answers to these questions will help you prepare for shortfalls or other financial needs.

Perhaps one of the best things about working with a banker you trust is their experience. They can offer free, valuable advice and may even introduce you to leaders of businesses that complement your own.

Key Financial Health Documentation

Be prepared to position your company in its best light. This means having some of the following available to both help you track the trajectory of your business but also use as a tool to explain your vision to others when needed:

  • Financial Statements

A financial statement is essentially how your business looks on paper. This includes an income statement, which reports revenue, expenses, and income. It also includes information on your company’s financial condition in terms of how much money you and outsiders have in the company and how your business performed across the year.

  • Historic Information (such as financial statements and tax returns)

While your most recent financial statement is key, it’s also important to bring financial statements and tax returns for a few years if possible. Comparing how you did this year against previous years, and against the industry, helps to show overall performance and not just one snapshot in time.

  • Your Forecast, including where you see any potential shortfalls

Sharing this information is important to be sure your credit and other financial needs are met. It also keeps everyone on the same page.

Understanding how your business is doing, and projected to do, helps you and your team know exactly how to help you and help plan for your future. Just like in any endeavor, working with banker you trust and who knows your business and industry can help make that road a little smoother.