Introduction

Getting your business ready for funding is all dependent on how orderly your Finances are. Funders will be hesitant to put their money into a company whose finances aren’t well-managed. Having a strong financial position will improve your chances of being sponsored.

There are three key components to have and understand to make sure your finances are in order:

  1. Getting your financial statements ready
  2. Managing your business expenses
  3. Understanding your credit history

 

  • Getting your financial statements ready: The most recent financial accounts for your company are one of the documents required when asking for a loan. The banks need you to submit your management accounts if they are older than six months.
    Financial statements are a formal record of your company’s financial performance over the previous year, whereas management accounts are a more up-to-date perspective of your finances, provided in a format that the management team can readily assess and utilize to make short-term decisions.
    If you don’t have the financial statement or management accounts, you’ll need to either employ a bookkeeper or ask your accountant to generate them for you.  Sage basic accounting, Fresh books, and Quick books are just a few examples of free and low-cost accounting software that small businesses can use to handle their accounts on their own.
    Take some time to go through these financial documents and make sure you can answer any inquiries about your financial performance that may arise.
  • Managing your business expenses: It’s critical to effectively manage and control your spending, especially if your company is rapidly expanding. It’s possible that your expenses are expanding at the same rate, if not faster, than your revenues.
    Keeping track of your business expenses will help you manage your cash flow and increase your profitability.
    Financiers want to view your financial statements and bank statements (both personal and business) to check how you run your company and if you’re spending your money wisely, such as not overpaying yourself or utilizing the company’s funds for personal reasons.
  • Understanding your credit history: A lender will look at your credit history while evaluating a loan application. This is especially true in countries with well-developed banking and lending systems. Even if credit scores aren’t relevant in your country, understanding how they affect your ability to obtain financing is crucial.

What is credit?

A commercial agreement in which a borrower receives a quantity of money or anything of value and repays the lender at a later period, usually with interest, is known as credit.

Credit can also refer to a person’s or a company’s creditworthiness or credit history. It usually refers to an accounting item that reduces assets or increases liabilities and equity on a company’s balance sheet, according to an accountant.

What is a credit score?

A credit score is a number that ranges from 300 to 850 and represents a person’s creditworthiness. A borrower’s credit score improves the way he or she appears to potential lenders. A credit score is calculated using information from your credit history, such as the number of accounts you have open, the total amount of debt you owe, and your repayment history, among other things. Credit scores are used by lenders to assess the likelihood of a borrower repaying a loan on time.

Tips on how to improve your credit score
A bad credit score (personal & business) will negatively impact your ability to source financing. If you are worried about a low credit score, look at the following tips on improving your score.

Tips on improving a bad credit score:

  • Check your credit score annually and request a free print out.
  • Actively dispute errors or incorrect judgements on your credit score.
  • If you are seriously in the red, seek a legitimate credit counsellor to assist you with getting back on track
  • Pay your bills on time! Late payments or missed payments impact your credit score negatively.
  • Keep good debt (i.e. home loan) and reduce ‘bad’ debt quickly; such as store credit accounts and credit cards.
  • Keep a low balance on credit cards.
  • It took time to get a bad credit score and therefore it will take a while to reduce it.

Zero credit score

You will have a zero credit score when you’ve never had credit (for example, a loan, cell-phone contract, or retail account). Unfortunately, this will have an impact on your capacity to obtain funding in the future.

To raise your credit score from zero to one hundred percent;
1. Get a copy of your credit report. Because of the amount of fraud out there, even if you’ve never had any kind of credit, this is vital.
2. Get a credit card from your bank, use it for a small amount, and pay it back on time. You pay no or very little interest this way, but your credit score improves.
3. If you are not ready for a bank loan, don’t take one out because you will be paying a lot of interest.

 

Tips on managing business expenses

1. Make and stick to a budget: Budgeting allows you to make a spending plan for your money, ensuring that you have enough money to buy what you need.
2. Maintaining good records: Hire an administrator or purchase an online accounting software like Sage Pastel to help you with this.
3. Separate your personal and company expenses: Even if you run the business alone, start by opening a separate bank account.
4. Keep track of your spending: Review your spending on a regular basis to see if you’re staying inside or outside of your budget. This will also assist you to identify any potentially problematic costs early on.
5. Resolve issues quickly: If you notice that a cost is spiraling out of control, take action as soon as possible to bring it back under control.
6. Have a cost-cutting mindset: Having a cost-cutting perspective will make you think twice about overspending on office purchases; you’ll learn to haggle or shop around for the best deals, and cutting expenses will always be on your mind.