Women Accessing Capital - Putting Your Financial House in Order

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Women Accessing CapitalTraining 101:

Putting Your Financial House in Order

Course Instructor:

Michelle Hoffman, CPA

CEO, Hoffman CFO Consulting

©2011 WIPP All Rights Reserved www.WIPP.org www.WomenAccessingCapital.com

1‐888‐488‐WIPP

• The Voice for Women in Business in our Nation’s Capital.

• National nonpartisan public policy organization representing over half a million Women Business Owners including 54 business organizations.

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• Thirty‐one local Instant Impact teams across the country engaging with legislative officials and the business community to advocate for Women Business Owners.

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Women Accessing Capital Program:

National program from WIPP’s “Women, Money and Opportunity” series.

The program is designed to educate women business owners on how to secure the money that will support and

grow your business.

www.WomenAccessingCapital.com

Instructor

Michelle Hoffman, CPAMichelle Hoffman, CPACEO and FounderCEO and Founder

Hoffman CFO ConsultingHoffman CFO Consulting

www.hoffmancfo.comwww.hoffmancfo.com

©2011 WIPP All Rights Reserved www.WIPP.org www.WomenAccessingCapital.com 1‐888‐488‐WIPP

Course Goals•Understand personal financial information and basic financial statements you will need to produce

•Review a well‐structured income statement and balance sheet

•Understand how lenders will analyze your financials and know what to expect ahead of time

•Tips on business planning and forecasting


Personal Financial Information•Credit History / Credit Score: Equifax, Experian, and TransUnion. www.annualcreditreport.com

•Personal Financial Statements – Form 413 www.sba.gov/content/personal‐financial‐statement

•2‐ 3 years of tax returns, personal and business (sometimes together, i.e. sole proprietors and single member LLCs file a Schedule C on the 1040)


OMB APPROVAL NO. 3245-0188 EXPIRATION DATE: 8/31/2011

PERSONAL FINANCIAL STATEMENT

U.S. SMALL BUSINESS ADMINISTRATION As of ,

Complete this form for: (1) each proprietor, or (2) each limited partner who owns 20% or more interest and each general partner, or (3) each stockholder owning20% or more of voting stock, or (4) any person or entity providing a guaranty on the loan.

Name Business Phone

Residence Address Residence Phone

City, State, & Zip Code

Business Name of Applicant/Borrower

ASSETS

Cash on hand & in Banks

Savings Accounts

IRA or Other Retirement Account

Accounts & Notes Receivable

Life Insurance-Cash Surrender Value Only (Complete Section 8)

Stocks and Bonds (Describe in Section 3)

Real Estate (Describe in Section 4)

Automobile-Present Value

Other Personal Property (Describe in Section 5)

Other Assets (Describe in Section 5)

Total

Section 1. Source of Income

Salary

Net Investment Income

Real Estate Income

Other Income (Describe below)*

Description of Other Income in Section 1.

(Omit Cents) LIABILITIES (Omit Cents)

$ Accounts Payable $

$ Notes Payable to Banks and Others $

$ (Describe in Section 2)

$ Installment Account (Auto) $

$ Mo. Payments $

Installment Account (Other) $ $ Mo. Payments $

Loan on Life Insurance $

$ Mortgages on Real Estate $

(Describe in Section 4) $ Unpaid Taxes $


Other Liabilities $


Total Liabilities $

Net Worth $

$ Total $

Contingent Liabilities

$ As Endorser or Co-Maker $

$ Legal Claims & Judgments $

$ Provision for Federal Income Tax $

$ Other Special Debt $

*Alimony or child support payments need not be disclosed in "Other Income" unless it is desired to have such payments counted toward total income.

(Use attachments if necessary. Each attachment must be identified as a part of this statement and signed.)Section 2. Notes Payable to Banks and Others.

Original Current Payment Frequency How Secured or EndorsedName and Address of Noteholder(s) Balance Balance Amount (monthly,etc.) Type of Collateral

SBA Form 413 (10-08) Previous Editions Obsolete (tumble) This form was electronically produced by Elite Federal Forms, Inc.

Section 3. Stocks and Bonds. (Use attachments if necessary. Each attachment must be identified as a part of this statement and signed).

Number of Shares Name of Securities Cost Market Value Date of Total ValueQuotation/Exchange Quotation/Exchange

Section 4. Real Estate Owned. (List each parcel separately. Use attachment if necessary. Each attachment must be identified as a part of this statement and signed.)

Property A Property B Property C

Type of Property

Address

Date Purchased

Original Cost

Present Market Value

Name &Address of Mortgage Holder

Mortgage Account Number

Mortgage Balance

Amount of Payment per Month/Year

Status of Mortgage

(Describe, and if any is pledged as security, state name and address of lien holder, amount of lien, terms

Section 5. Other Personal Property and Other Assets. of payment and if delinquent, describe delinquency)

Section 6. Unpaid Taxes. (Describe in detail, as to type, to whom payable, when due, amount, and to what property, if any, a tax lien attaches.)

Section 7. Other Liabilities. (Describe in detail.)

Section 8. Life Insurance Held. (Give face amount and cash surrender value of policies - name of insurance company and beneficiaries)

I authorize SBA/Lender to make inquiries as necessary to verify the accuracy of the statements made and to determine my creditworthiness. I certify the above and the statements contained in the attachments are true and accurate as of the stated date(s). These statements are made for the purpose of either obtaining a loan or guaranteeing a loan. I understand FALSE statements may result in forfeiture of benefits and possible prosecution by the U.S. Attorney General (Reference 18 U.S.C. 1001).

Signature: Date: Social Security Number:

Signature: Date: Social Security Number:

PLEASE NOTE: The estimated average burden hours for the completion of this form is 1.5 hours per response. If you have questions or comments concerning this estimate or any other aspect of this information, please contact Chief, Administrative Branch, U.S. Small Business Administration, Washington, D.C. 20416, and Clearance Officer, Paper Reduction Project (3245-0188), Office of Management and Budget, Washington, D.C. 20503. PLEASE DO NOT SEND FORMS TO OMB.

RSultan

Text Box

SBA Form 413 (10-08) Previous Editions Obsolete

Common Bank Products•Unsecured Bank Line of Credits – Up to $25,000, directly to established businesses (2‐3 yrs) with good credit (680 or >).

•Term Bank Loans and Larger Lines of Credits – While each bank evaluates how much they will lend differently, some general rules of thumb are that banks will not lend more than 80% of sales revenue or your accounts receivable balance.

•Small Business Administration (SBA) Loan – If you only marginally meet of the banks lending requirements, they may be willing to do the loan as an SBA loan. Current SBA loan program include 7(a) and CDC/504 Long Term for economic development: allows the borrower to purchase a building with 10% down.


What are ‘Accounts’?• As individuals and households, we have to measure income

and expenses for a period to make sure that we can pay the bills, save money, etc.

• Any business needs to do the same thing. Money in and money out is grouped in logical categories called ‘accounts’The master listing of accounts is called a “Chart of Accounts” and is the backbone of any accounting system.


Sample Chart of Accounts• Sample Chart of Accounts Structure• 10000 ‐ Assets• 20000 ‐ Liabilities• 30000 ‐ Equity• 40000 ‐ Income • 50000 ‐ Cost of Goods Sold (COGS) (Direct Costs) • 60000 – Expenses• 61000 – G&A Expenses (General & Administrative)• 62000 – Sales and Marketing

• 80000 – Unallowable (Used for Government Contracting)• 90000 – Other Income and Expenses


Cost of Goods Sold v. Expenses• Cost of Goods Sold (COGS) – Costs directly linked

to the Project/Client• Salaries of staff working on billable projects• Direct materials or travel for the client

• Expenses (General & Administrative)• Rent• Legal and accounting• Telephone and cell phone• Insurance and taxes


Profit and Loss (P&L)• Any company should be able to produce a

statement of all its income and all its expenses for a given time period

• This statement, showing income less expenses is commonly called an Income Statement or Profit and Loss (P&L)

• Income less expense will be a profit (positive) or a loss (negative)


Case Study – Fido Nanny

• Sally earns $10,000 in the first 3 months of Fido Nanny her dog walking and pet grooming business.

• She paid $2,500 to dog walkers, $3,000 for food and supplies, and $1,000 for advertising.

• She wants to create a P&L to see if her business is making money.



Assets

• Assets are resources of the business and include any type of cash, savings or paypalaccount

• Other examples of assets are accounts receivable (unpaid invoices), deposits, prepaid expenses, such as prepaid health, or fixed assets, such as computer and office equipment


Liability

• A liability represents debts owed or other obligations of the business

• They can be current (due within 1 year) or long‐term (terms greater than 1 year)

• Examples include accounts payable (bills the company has not yet paid) and loans or lines of credit


Case Study – Fido Nanny• Continuing with our example of Fido Nanny, let’s

assume the following:• Sally started the company with a $500

investment• Fido Nanny took a $5,000 bank loan—none

of the loan was paid down as of March 31, 2011

• Fido Nanny still owed $200 dollars to a dog walker on March 31, 2011



10:52 AM 04/13/11

Service Company Sample Account Listing

April 13, 2011

Accnt. # Account Type

10100 10100 · Checking Bank

12000 12000 · Accounts Receivable Accounts Receivable

10900 10900 · Undeposited Funds Other Current Asset

12100 12100 · Other Receivables Other Current Asset

12500 12500 · Prepaid Expenses Other Current Asset

14000 14000 · Fixed Assets Fixed Asset

14100 14000 · Fixed Assets:14100 · Computers & Equipment Fixed Asset

14200 14000 · Fixed Assets:14200 · Furniture Fixed Asset

20000 20000 · Accounts Payable Accounts Payable

20100 20100 · Credit Card Payable Credit Card

24000 24000 · Payroll Liabilities Other Current Liability

30000 30000 · Opening Balance Equity Equity

32000 32000 · Retained Earnings Equity

41100 41100 · Revenue - Federal Income

42000 42000 · Revenue - Commercial Income

43000 43000 · Grants Income

51000 51000 · Federal COGS Cost of Goods Sold

51100 51000 · Federal COGS:51100 · Direct Labor - Federal Cost of Goods Sold

51310 51000 · Federal COGS:51310 · Subcontractors - Federal Cost of Goods Sold

51320 51000 · Federal COGS:51320 · Other Direct Costs Cost of Goods Sold

61000 61000 · Research & Development Expense

62000 62000 · G&A Expenses Expense

62100 62000 · G&A Expenses:62100 · G&A Salaries & Wages Expense

62310 62000 · G&A Expenses:62310 · Rent Expense

62311 62000 · G&A Expenses:62311 · Business Insurance Expense

62312 62000 · G&A Expenses:62312 · Telephone/Internet Expense Expense

62313 62000 · G&A Expenses:62313 · Computers/IT Expense Expense

62314 62000 · G&A Expenses:62314 · Solidworks/Orcad Expense

62315 62000 · G&A Expenses:62315 · Travel Expense - Transportation Expense

62316 62000 · G&A Expenses:62316 · Travel Lodging Expense

62317 62000 · G&A Expenses:62317 · Travel Meals Expense

62318 62000 · G&A Expenses:62318 · Local Parking, Fees & Tolls Expense

62319 62000 · G&A Expenses:62319 · Bank Fees Expense

62320 62000 · G&A Expenses:62320 · Conferences Expense

62321 62000 · G&A Expenses:62321 · Training Expense

62322 62000 · G&A Expenses:62322 · Memberships Expense

62323 62000 · G&A Expenses:62323 · Business Meals Expense

62324 62000 · G&A Expenses:62324 · Office Supplies & Expense Expense

62325 62000 · G&A Expenses:62325 · Legal & Accounting Expense

62326 62000 · G&A Expenses:62326 · Payroll & Benefit Admin Fees Expense

62327 62000 · G&A Expenses:62327 · Consulting Fees Expense

62328 62000 · G&A Expenses:62328 · Postage & Shipping Expense

62329 62000 · G&A Expenses:62329 · Printing & Reproduction Expense

62330 62000 · G&A Expenses:62330 · Depreciation Expense Expense

62331 62000 · G&A Expenses:62331 · Taxes Expense

Page 1 of 2

10:52 AM 04/13/11

Service Company Sample Account Listing

April 13, 2011

Accnt. # Account Type

62332 62000 · G&A Expenses:62332 · Licenses & Permits Expense

63000 63000 · Sales & Marketing Expense

64000 64000 · Bid and Proposal Expense

65000 65000 · Overhead Expense

65200 65000 · Overhead:65200 · Overhead Fringe Expense

65210 65000 · Overhead:65200 · Overhead Fringe:65210 · Payroll Taxes Expense

65220 65000 · Overhead:65200 · Overhead Fringe:65220 · PTO (Holiday and Leave) Expense

65230 65000 · Overhead:65200 · Overhead Fringe:65230 · Health, Life & Disability Expense

65240 65000 · Overhead:65200 · Overhead Fringe:65240 · 401k Match Expense

65250 65000 · Overhead:65200 · Overhead Fringe:65250 · Bonuses Expense

80000 80000 · Unallowable Expenses Expense

81000 80000 · Unallowable Expenses:81000 · Interest Charges Expense

82000 80000 · Unallowable Expenses:82000 · Unallowable Meals Expense

84000 80000 · Unallowable Expenses:84000 · Other Benefits Expense

86000 80000 · Unallowable Expenses:86000 · Taxes Expense

87000 80000 · Unallowable Expenses:87000 · Contributions Expense

88000 80000 · Unallowable Expenses:88000 · Entertainment Expense

90000 90000 · Other Income & Expenses Other Expense

Page 2 of 2

Accrual v. Cash Accounting• Under the Accrual basis accounting:• Revenue is recognized when both of the following

conditions are met:• a. Revenue is earned• b. Revenue is realized or realizable• Expense recognition: Expense is recognized in the period

in which related revenue is recognized (weather or not it was paid) (Matching Principle)

• An accrual accounting system will tell you A/R, A/P and allow you to produce a balance sheet (e.g. QuickBooks)

Source: Accounting Info.com


Accounting System List• Accrual Accounting Systems

• www.OpenERP.com• www.Quickbooks.com• www.WorkingPoint.com

• Cash Basis Accounting Systems• www.outright.com• www.freshbooks.com


How Lenders See Your Financials ‐ Loans up to $250k

• 680 or better personal score• 167 or better Dunn & Bradstreet• Good legal standing• “Cash Flow” – is there sufficient net income to support

the monthly loan repayment• Balance sheet may need assets equal to the requested

loan amount• 10% of revenues for lines of credit up to $100,000• Banks want sufficient collateral: personal residence; $

for $ cash match; cash value insurance


Forecasting


•Financial Projections Templatehttp://www.score.org/business_toolbox.htmlProfitability•Microsoft Excel Templates – many free•Investors will want narrative of potential market of millions of dollars with financial forecasts showing how you will acquire market share—see Cooley Capital Call application•Profit Margins – where do you stand compared to our industry – RMA•http://money.msn.com – lots of good stats and ratios but bigger companies

Questions?


Michelle Hoffman, CPAHoffman CFO Consulting

[email protected]‐821‐1835

www.hoffmancfo.com

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Economy & Finance

Women Accessing Capital - Putting Your Financial House in Order