Business Education

Getting Ready to Borrow

Whether it is the start-up or growth phase, sooner or later most businesses need to borrow money. While every loan process may be different, there are several things you can do to make the loan process easier. Most importantly, remember that loan officers are looking at many things, not just your financial record. Banks lend based on credit and repayment ability not just against collateral.

Consider the Type of Loan

Have you investigated all the alternative types of capital sources?
Does the term of the loan you are seeking match up with the purpose for which it is being taken out?
Does the amount of the loan you are seeking match up with your projected cash flow?

Documentation Needed

Tax returns – Company and potentially personal tax returns
Financial statements – Past two years and year-to-date
Cash flow history and projections

Business Plan

Do you have an overall business plan and is it current?
Does it include important information like major customers, suppliers, and key employees?
Do you have a current marketing plan and are you following it?

Business Practices

Does your accounting system adequately show the condition and results of the business?
What is your accounts payable policy? How current are your receivables? Do you take advantage of any discounts for prompt payment?
What type of insurance coverage do you have? Is there adequate insurance for liability and property damage?

Taxes

Are all your tax filings current (payroll, property, income)?
Are your returns prepared by a qualified professional to help you ensure your tax benefits are maximized?

Summary

Applying for a loan can be a stressful experience. The loan officer’s job is to fully understand you and your company and then make the approval decision or present your loan to an approval group. Being prepared can help make the process easier, less stressful, and hopefully improve your chances of getting your loan approved.

At CSB, local experts are ready to help you and your business. Our business bankers take the time to learn about your business make recommendations to help you succeed

We will help you through every step.

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Developing a Business Plan

Are you ready to start a business? Use these best practices to develop a business plan to help you launch the business of your dreams.

For the business owner who has spent hundreds, if not thousands, of hours thinking about and planning his or her business, it may seem like a waste to spend the time, effort, and energy to develop a formal business plan. But, there is a great deal of difference between pondering business choices and developing a business plan.

There are three important benefits of having a formal business plan. The first is that a business plan will be an essential part of any request for financing. A well-prepared plan improves your chances of obtaining financing. Second, it can serve as a guide for policies and actions for your company over a number of years. Strategies and statements should be well thought out, unambiguous, and capable of being carried out. Third, the process of preparing the plan will enable, if not force, you to focus on issues that are essential for the future success of your business.

A good business plan includes many details. It can take a great deal of time gathering detailed data, interpreting it, and presenting it clearly. For example, while pondering expanding with a new product, it may be OK to target future sales of the product at $3 to $6 million over the next 5 years. For a formal business plan, the range would have to be narrowed considerably and the timing of the sales would have to be estimated for each of the 5 years. Also, expense estimates must be realistic and the plan should include possible contingency plans if the new product sales are slower than expected.

A formal business plan should include the following:

1. Business Identification

Company
History and milestones

2. Purpose

Mission
Goals
Objectives

3. Description of the Business

Company’s products and services
Major Customers

4. Market Analysis

Market environment
Competitive analysis, including competitors
Risks

5. Location

Facilities and offices
Leases or real estate owned

6. Management

Key employees
Background
Roles

7. Personnel

8. Financial Information

Income statements, historical and projected
Balance sheets, historical and projected
Cash flow analysis

As you proceed through the business plan, remember that statements should be supported with data whenever possible. Data adds creditability. It is often advisable to use charts and graphs to present the data to make it more easily understood.

Conclusion

The preparation of a full-blown and high-quality formal business plan can be an arduous task. It can take considerable time and force you to address issues that are easy to put off in the daily operation of your business. However, it can be worth the effort.

The process of preparing the plan will put you in a better position to make daily decisions. The final document will be useful when seeking financing, explaining the business to potential key employees, and someday in creating a document for selling the business you worked so hard to create.

Ready to get started?

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Business Types and Documentation

CSB is required to obtain certain legal documents and information to confirm the identity of your business, as well as the identity of its owners, signers, and persons of authority. We appreciate your help as we work together to open your new bank account.

Sole-Proprietorship

Schedule C from your personal tax return
- or State certificate of name registration
- or EIN assignment letter
- or Vendor’s license
Your personal banker will prepare a Sole-proprietor ship resolution

Corporation

Corporate resolution or Close Corporation agreement
State certificate of name registration
EIN assignment letter
Your personal banker will prepare a corporate resolution and a beneficial ownership certification form

Legal Partnership

Partnership agreement, including names of partners
State certificate of name registration
EIN assignment letter
Your personal banker will prepare a partnership resolution and a beneficial ownership certification form

Sole Member LLC

Operating Agreement or other legal document indicating LLC is sole member
State certificate of name registration
EIN assignment letter or Social Security Card
Your personal banker will prepare a partnership resolution and a beneficial ownership certification form

Multiple Member LLC

Operating agreement, including names of members
State certificate of name registration
EIN assignment letter
Your personal banker will prepare an LLC resolution and a beneficial ownership certification form

Non-Profit Corporation

Corporate resolution or Close Corporation agreement
State certificate of name registration indicating nonprofit status
EIN assignment letter
Your personal banker will prepare a corporate resolution and a beneficial ownership certification form

Non-Profit Organization

EIN assignment letter and copy of association’s meeting minutes or letter authorizing signers, listing those authorized on the account and signed by the organization’s persons of authority
Your personal banker will prepare a resolution of lodge, association, or organization and a beneficial ownership certification form for your control person to sign if the business is registered with the state of Ohio

Clubs & Civic Organizations

EIN Assignment Letter
Copy of association’s meeting minutes or letter authorizing signers, listing those authorized on the account and signed by the organization’s persons of authority
Your personal banker will prepare a resolution of lodge, association, or organization

Beneficial Ownership Certification

What is it?

When you open a new account, apply for a loan, or make certain changes to your account(s) or relationship with the bank, federal regulation requires that you must provide information so we may identify and verify the identity of beneficial owners of legal entity customers.

A Beneficial Owner is:

Each individual who owns 25% or more of the company
One individual who has significant managerial responsibility for the company

Required Information for Each Beneficial Owner:

Name
Address (Personal or Business)
Date of Birth
Social Security Number or Tax Identification Number
Photo Identification (Driver’s License, State Issued ID Card, Passport, or Alien ID Card)

Types of Financial Documents

Balance Sheets

What is it?

A balance sheet shows a business's financial condition in a single point in time. It includes a list of assets, liabilities, and equity. Balance sheets have two sides, assets are listed on the left side and liabilities and equity are on the right. When completing a balance sheet total liabilities and equity should equal total assets.

Balancing Out:

Here is an example: If a building is owned and is worth $100,000 that is an asset which appears on the left side of a balance sheet. However, lets say in order to purchase this building a loan was taken out for $80,000. This loan will show as a liability. Since the building is worth $100,000 that leaves $20,000 showing as equity.

$100,000 Building Worth (Asset) = $80,000 Loan Amount (Liability) + $20,000 Already Paid Towards Loan (Equity)

Why is it important?

A balance sheet is important because it give a quick view of how your business is doing by showing what a business owns (assets) and what it owes (liabilities).

Income Statements

What is it?

Instead of looking at one point in time, like a balance sheet does, an income statement looks a business' financials over an extended period of time and may also be called a profit and loss statement because it shows whether a business made a profit or had a loss.

Income Statement: Calculating Net Income

Gross Profit

For example, XYZ company sold 50,000 widgets at $20 a piece equaling $1,000,000 in net sales. The cost for materials to make each widget is $3, at $150,000 total. The $150,000 is part of what makes up Cost of Goods Sold (COGS) but labor and cost of machinery must also be taken into account along with any other expense related to manufacturing a product. COGS will not include items such as sales, marketing, insurance, utilities, rents, depreciation, etc. For this example, the extra costs have added another $200,000 bringing the COGS to $350,000. This means the Gross Profit is $650,000.

$650,000 (Gross Profit) = $1,000,000 (Net Sales) - $350,000 (COGS)

Operating Income

XYZ company has a gross profit of $650,000. To calculate Operating Income, the Operating Expenses is taken from the Gross Profits. Operating Expenses are the line items not included in the COGS: sales, marketing, insurance, utilities, rents, depreciation, etc. For this example, the Operating Expenses add up to $250,000. This will make the Operating Income $400,000.

$400,000 (Operating Income) = $650,000 (Gross Profit) - $250,000 (Operating Expenses)

Net Income

The final step is to calculate the Net Income. This is calculated by finding the sum of Operating Income and Non-Operating Income. The Operating Income for XYZ company is $400,000. The company also made $100,000 from selling scrap metal. This income does not count towards Net Sales, because it is not income from selling the widgets. This means the Net Income is $500,000.

$500,000 (Net Income) = $400,000 (Operating Income) + $100,00 (Non-Operating Income)

Operating income is added to the net non-operating revenues, gains, expenses and losses. This final figure gives the net income or net loss of the business for the reporting period.

Why is it important?

An income statement is important because it helps business owners and investors know the financial health of a business. Income statements should be prepared on a regular basis so the view of the profit and losses of a business can be consistently monitored and actions can be adjusted based on the findings.

Cash Flow Statement

What is it?

A cash flow statement provides a summary of how cash is flowing in and out of a business within a set time period. To complete a cash flow statement, the balance sheet and income statement will need to be completed first. Information from the income statement and balance sheet are used to create the cash flow statement.

Components of Cash Flow Statement

There are three (3) main components of a cash flow statement:

Operating Activities: Cash earned or spent in the course of regular business activity (ex: selling products or services)
Investing Activities: Cash earned or spent from investments the company makes (ex: purchasing equipment)
Financing Activities: Cash earned or spent in the course of financing the company with loans and/or lines of credit

Cash Flow Forecast

A cash flow forecast gives an estimate of the future financial position of a business based on expected income and expenses. If XYZ business has a beginning cash balance of $500,000 and expects income to be $600,000 and expenses to be $400,000, then the cash flow forecast would be $700,000.

$700,000 (Cash Flow Forecast) = $500,000 (Beginning Cash) + $600,000 (Projected Income) – $400,000 (Projected Expenses)

Why is it important?

A cash flow statement is important because it helps a business understand their current liquidity as well as estimate future cash flows. This helps a business make informed decisions about executing current plans and setting goals for the future.

Sources: Investopedia, Freshbooks, Waveapps

Inventory Management

Inventory is something every business has whether it be regular office supplies to the products being sold and the supplies needed to make them and it all needs managed. Proper management of inventory can save you time and money when done correctly. There also isn't a one size fits all to inventory management. There are many different types of inventory management, the trick is finding the best one for you and your business.

What is it?

Inventory Management is a systematic way of storing and organizing components and finished goods. The goal is to know where the business supplies and products are and how much inventory to order when needed.

Why is it important?

When inventory is managed correctly the rest of the supply chain will move more efficiently. The more efficient a process, the less money it costs a business. It also prevents extended wait times on finished goods or cancelling orders due to lack of material which costs a business monetarily and reputationally.

Methods of Inventory Management

There are many different ways to management inventory. The following are the few most common ways.

Just-in-Time Inventory Management

Just-in-Time (JIT) inventory management is a technique where inventory is ordered on an as needed basis. This prevents over ordering and means there is less stock being held and stored. This also means there is no dead stock. Dead stock is inventory that is never sold and is discarded and written as a loss. An example of this type of inventory management is a furniture store. Typically there isn't any inventory of furniture for the customer to take home same day. Instead, it is ordered, manufactured, and sent to the store for pickup or sent directly to the customer. This saves the furniture store money in storing the finished pieces and prevents an overstock of out of style pieces.

FIFO and LIFO Methods

First In First Out (FIFO) means the inventory bought first is sold first. An example of this is a grocery store. The inventory which was bought first and has the closest expiration date is placed towards the front of the self and sold first while inventory that was most recently received is placed towards the back and sold last.

Last In First Out (LIFO) means the inventory purchased most recently is sold first. Typically the inventory purchased most recently cost more than the inventory purchase a few months prior because of inflation. Today you purchased fabric for $3 dollars where last year the price was $1. Using LIFO means the inventory purchased most recently at a higher price are sold first.

Kanban Inventory Management

Kanban is an inventory scheduling system used in lean manufacturing and is designed to keep inventory levels as low as possible. The Kanban system is used to create signals or triggers to reorder and replenish stock in specific quantities. As inventory in a supply closet is used, the quantities are tracked. When it reaches a certain stock level, there will be a signal sent to order more.

Additional Resources

Small Business Development Center at Kent State University at Tuscarawas

Learn more about starting a business and managing growth through workshops and classes

U.S. Small Business Administration

Access the Small Business Guide and browse business topics

Prepared for informational purposes only. Please consult with a legal and/or tax professional for specific guidance.