Business Credit Counseling: Advice For A Better Financial Statement

As companies face delinquencies, defaults and other forms of insolvent operation, they may need business credit counseling services. Business credit managers seek a variety of tools to help get a handle on the necessary assessments to gain a better understanding of the exact health a business enjoys.  In order to shop for financial funding for business expansion, a business manager needs to put together a detailed “story” about the company’s current financial health.

Annual Report

Any business that is publicly traded is required by the U.S. Securities and Exchange Commission (SEC) to publish an audited financial statement annually. The reports are filed with the SEC and appear in the annual report. This report is basically the story told about the business activity the previous year and includes the financial statement.

Financial Statement

There are several parts to a financial statement that provide the “health” reports of any business:
  • Balance Sheet
  • Income Statement
  • Retained Earnings Statement
  • Cash Flow Statement
Each part of the statement is an integral part of the other helping to support or explain one another providing a full picture of a business’ health status.

Balance Sheet

A properly prepared balance sheet tells potential investors how a company fares financially, listing all company assets including real property (land, buildings, vehicles, equipment and inventory) and cash on hand. A balance sheet will list intangible assets that play a large part determining a company’s worth such as patents and trademarks. The balance sheet also reveals the company’s liabilities and posts the business equity – the difference between assets that are owned and liabilities owed. A balance sheet must also be periodically produced – usually on a monthly basis – because it declares a business’s financial health at a specific point in time. It can reveal information that drastically changes from one month to another.

Trend Analysis

Investors will employ a business credit manager who analyzes company activity over a prolonged period of time, so a business seeking investment or credit needs to prepare at least three periods of financial statements to present – normally produced on a quarterly basis. This is important for trend analysis that looks at activity and what cause has what effect during an expanse of time. A simple example is a review of a company’s Accounts Receivable analyzing if the AR is in an upswing or downturn. A company sales may be in an upward swing, but collections may be either stable or perhaps behind, yet remain an asset. Counseling may determine an organized plan to increase collection activity to improve a company’s AR standing. The same analysis also is applied toward review of Accounts Payable. If the AR is going up, it can indicate either the company is not paying vendors or, in a detailed analysis, may reveal an increase in sales resulting in increased credit offered to customers.

This reveals quite simply how all the aspects for a properly prepared financial statement can help any investor or credit manager gain a better and full understanding of the health of a business that leads to successful credit management.


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