Business Record Keeping Essentials

What kind of Records Do I Need to Keep in My Business?200811-img3
Complete and accurate financial record keeping is crucial to your business success. Good records provide the financial data that help you operate more efficiently. Accurate and complete records enable you to identify all your business assets, liabilities, income and expenses. That information helps you pinpoint both the strong and weak phases of your business operations.

Moreover, good records are essential for the preparation of current financial statements, such as the income statement (profit and loss) and cash-flow projection. These statements, in turn, are critical for maintaining good relations with your banker. Finally, good records help you avoid underpaying or overpaying your taxes. In addition, good records are essential during an Internal Revenue Service audit, if you hope to answer questions accurately and to the satisfaction of the IRS.

To assure your success, your financial records should show how much income you are generating now and project how much income you can expect to generate in the future. They should inform you of the amount of cash tied up in accounts receivable. Records also need to indicate what you owe for merchandise, rent, utilities, and equipment, as well as such expenses as payroll, payroll taxes, advertising, equipment and facilities maintenance, and benefit plans for yourself and employees. Records will tell you how much cash is on hand and how much is tied-up in inventory. They should reveal which of your departments or services are making a profit, as well as your gross and net profit.

The Basic Recordkeeping System
A basic record-keeping system needs a basic journal to record transactions, accounts receivable records, accounts payable records, payroll records, petty cash records, and inventory records. These records will form the basis of your financial statements and tax returns.

Business Applications Performed by Computers
A computer’s multiple capabilities can solve many business problems from keeping transaction records and preparing statements and reports to maintaining customer and lead lists, and paying your staff. A complete computer system can organize and store many similarly structured pieces of information, perform complicated mathematical computations quickly and accurately, print information quickly and accurately, facilitate communications among individuals, departments and branches, and link the office to many sources of data available through larger networks. A computer can also streamline such manual business operations as accounts receivable, inventory, payroll, and planning. With all of these operations, the computer increases efficiency, reduces errors, and cuts costs.

The 7(m) and the (504) Loan Programs for Business

The 7(m) MicroLoan Program
The 7(m) MicroLoan Program provides small loans ranging from under $100 to $25,000. Under this program, the SBA makes funds available to nonprofit intermediaries; these, in turn, make the loans. The average loan size is $10,000. Completed applications usually are processed by the intermediary in less than one week. This is a pilot program available at a limited number of locations.

Use of Proceeds.
Microloans may be used to finance machinery, equipment, fixtures and leasehold improvements. They may also be used to finance receivables and for working capital. They may not be used to pay existing debts.

Terms Interest Rates and Fees.
Depending on the earnings of your business, you may take up to six years to repay a microloan. Rates are pegged at no more than 4% over the prime rate. There is no guaranty fee.

Collateral.
Each nonprofit lending organization will have its own requirements, but must take as collateral any assets purchased with the microloan. In most cases, the personal guaranties of the business owners are also required.

Eligibility.
Virtually all types of for-profit businesses that meet SBA eligibility requirements qualify.

The Certified Development Company (504) Loan Program
The Certified Development Company (504) Loan Program enables growing businesses to secure long-term, fixed-rate financing for major fixed assets, such as land and buildings. A certified development company is a nonprofit corporation set up to contribute to the economic development of its community or region. CDCs work with the SBA and private-sector lenders to provide financing to small businesses. There are about 290 CDCs nationwide.

The program is designed to enable small businesses to create and retain jobs; the CDC’s portfolio must create or retain one job for every $35,000 of debenture proceeds provided by the SBA. Typically, a 504 project includes:
A loan secured with a senior lien from a private-sector lender covering up to 50% of the project cost, A second loan secured with a junior lien from the CDC (a 100% SBA-guaranteed debenture) covering up to 40% of the project cost
A contribution of at least 10% equity by the borrower.
The maximum SBA debenture generally is $750,000 (up to $1 million in some cases).

Use of Proceeds.
Proceeds from 504 loans must be used for fixed-asset projects such as:
Purchasing land and improvements, including existing buildings, grading, street improvements, utilities, parking lots and landscaping, Construction, modernizing, renovating or converting existing facilities, Purchasing machinery and equipment.
The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt, or most refinancing.

Terms, Interest Rates and Fees.
Interest rates on 504 loans are based on the current market rate for five-year and 10-year U.S. Treasury issues plus an increment above the Treasury rate, based on market conditions. Only maturates of 10 and 20 years are available. Fees total approximately 3% of the debenture and may be financed with the loan.

Collateral.
Generally the project assets being financed are used as collateral. Personal guaranties of the principal owners are also required.

Eligibility.
To be eligible, the business generally must be operated for profit and fall within the size standards set by the SBA. Under the 504 Program, a business qualifies as small if it does not have a tangible net worth in excess of $6 million and does not have an average net income in excess of $2 million after taxes for the preceding two years, or if it meets standard 7(a) criteria. Loans cannot be made to businesses engaged in speculation or investment.

Minority and Women’s Pre-qualification Programs for SBA Loans

If you are a woman or minority who owns or wants to start a business, The Minority and Women’s Pre-qualification Programs can help. Intermediaries assist you in developing a viable loan application package and securing a loan. On approval the SBA provides a letter of pre-qualification you can take to a lender. The women’s program uses only nonprofit organizations as intermediaries; the minority program uses for-profit intermediaries as well.

200602image2Once your loan package is assembled, the intermediary submits it to the SBA for
expedited consideration; a decision usually is made within three days. If your application is
approved, the SBA issues a letter of pre-qualification stating the agency’s intent to guarantee the loan. The intermediary will then help you locate a lender offering the most competitive rates.

Maximum Loan Amount
The maximum amount for loans under the women’s program is $250,000; under the minority program, it is generally the same, although some district offices set other limits. With both programs, the SBA will guarantee up to 75% (80% on loans of $100,000 or less).

Here are the eligibility rules for these programs.
Businesses at least 51% owned, operated and managed by people of ethnic or racial minorities, or by women.
Businesses with average annual sales for the preceding three years that do not exceed $5 million.
Businesses that employ fewer than 100, including affiliates.
Businesses that are not engaged in speculation or investment.

Intermediaries may charge a reasonable fee for loan packaging. These programs are available through a number of SBA district offices nationwide. To find out if these programs are available in your area, contact your nearest SBA district office.