Forum Moderators: LifeinAsia
Are there any Profit and Loss Statement and Balance Sheet examples for me to use?
The examples I see seem to be focused on businesses that sell things. What if you have zero inventory?
Do I just have sales (income) and costs (how I make the income)?
What about a balance sheet?
Current assets line up easy enough.
Fixed assets... well, I own a ton of websites. Should they all be listed with my best valuation guess? Some were worth more or less last month than this month. Should I use a stated formula of multiples to valuate them?
I own a ton of undeveloped domains. Do I make a guess on those, or are they worth reg fee? Some are definitely worth more than reg fee. Are they worth what I paid for them? What are they worth?
These statements are for the consumption of an outside party. I don't want to give them any more details than I need to. I could make things simple, or I could overload them with information.
My accountant would write a letter explaining that I'm the actual asset of the company. At the same time, it's hard to deny that the websites themselves are income producing assets.
The purpose here is to obtain a personal loan. (not to solicit investment in a business)
I have tax returns to back up income. If you've done this before, should I be making it more simple or more complicated?
How should I proceed with any of this?
btw, I'd ask my accountant and the person requesting, but I'm in a huge hurry, so I'm trying to make my best guess to start with, hoping to avoid revisions as much as possible.
Balance Sheets are always tricky (there's a reason for using the letters B/S!) Although for a bank loan, it's doubtful that they will give much value to domain names, especially undeveloped ones.
I have a feeling a bank would laugh at a letter stating you were an "asset of the company" although I'm sure many small business owners actually do feel they are owned by the company (instead of the other way around). The only assets banks care about are things they can take and sell in case you default on the loan (cash, real estate, capital equipment, etc.). Pretty much any computer equipment you have wouldn't be worth their effort to try and sell. Most likely the only assets they give you credit for is cash in the bank and perhaps a percentage of accounts receivable.
There are certainly a number of sites out there with sample financial statements. Google for it, or you can check out the SBA and SCORE sites.
Most likely the banks are interested in:
1) History of income/cash flows (your tax returns should support this, but you may need to prepare Cash Flow statements)
2) sellable assets to use as collateral (again, very doubtful your business will have anything besides cash or cash-like items that they will care about)
If not, you are probably going to have to produce a personal balance sheet. This would include things such as your house, car(s), etc. From your description, there is probably not much of anything from the "business" that would go on a balance sheet.
Income statement shouldn't be a big problem. You know what you make. You know what you spend. (Right?)
If you have a company, you should already have both of these.
I certainly would hire an accountant, in any case. If you have an accountant who does your taxes, he should already have most, if not all, of the information needed to produce this.
I certainly wouldn't attempt to do this myself. Although in the past I have run a small computer consulting business and I did the books. But I was young and I wanted to know the details. Besides, my mother was a bookkeeper and I wanted to know what the heck it was that she did.
You do have books, right? ;)
a recent tax payment receipt from somewhere showing verifiable income
a set off accounts prepared by a reputable accountant
a valid business plan, in addition to the accounts , preferrably backed by the accountants reputation
Good luck
I have a feeling a bank would laugh at a letter stating you were an "asset of the company" although I'm sure many small business owners actually do feel they are owned by the company (instead of the other way around).
Kinda. I don't actually have any sort of ego stake in saying that. Recently, I had a bank request that my accountant make a statement that business was sound. He's a smart guy and didn't want to make any statement he couldn't back up. In place of that, he told them that my knowledge was the main asset of the company in an attempt to not have to verify actual income producing assets. (We'd be back to which website earns what and how, in that case.)
jtara
I'm confused. Do you have a company or not?
Yep.
jtara
If not, you are probably going to have to produce a personal balance sheet. This would include things such as your house, car(s), etc. From your description, there is probably not much of anything from the "business" that would go on a balance sheet.
Right. All of my entities are pass-through. What I need to figure out is how to dress up websites as assets. Or not to bother with specifics and make one listing for "web properties" or something. If I list them as income producing assets, I'll likely have to explain how and why. Explaining that for a ton of sites sounds crazy. Not explaining it at all may be unacceptable. You have to remember that this is for an audience I don't know well. I could explain it to you guys fairly easily. I'm not sure how to most easily explain it to a bank. I want to give them enough to not ask more questions, but not so much that I confuse the crap out of them.
jtara
You do have books, right? ;)
Once per year, I do. ;) I'm about to have 3rd quarter this year too.
I certainly would hire an accountant, in any case. If you have an accountant who does your taxes, he should already have most, if not all, of the information needed to produce this.
For the most part, he takes my income minus my expenses, gives me some advice, and signs off. He's probably one of the 3 best people in a large city if I have a tax audit. However, he doesn't delve into the nuts and bolts of the business.
I'm trying to figure out where the balance is between acceptable information and information overload. If I don't give them enough, they'll want more. If I give them too much, I don't expect them to understand it. Not understanding it might lead to a lot of questions and confusing answers for them.
That's partially why my accountant took the easy way out and explained it all as my labor. He didn't want to do the same thing I don't want to do. (Full disclosure for someone who will almost certainly not know what they are looking at.)
a recent tax payment receipt from somewhere showing verifiable income
That's covered.
a set off accounts prepared by a reputable accountant
I'd have to teach the accountant, then teach the end reader. (Trying to avoid if posible)
a valid business plan, in addition to the accounts , preferrably backed by the accountants reputation
He wouldn't do that for anyone. At best, he'd go on past performance which is contained in tax returns. (and fine.)
Maybe the lendor just wants something to fill in blanks with. I'm trying to figure out what they need. They'd like me to answer some questions, but won't exactly say what kinds of answers they need.
I've had two offers to lend without the same financial statements. This is a little bit better deal, but I don't want to drown them in info if I can keep from doing so.
Thanks for the thoughts thus far. Keep them coming. :)
Remember what the bank is looking for:
1) Do you have the ability to re-pay the loan in total? (This is shown by tax returns showing profits for the past several years.)
2) Can you make the monthly payments? (Shown by a history of cash flow statements. Or if you have negative cash flows for some months, being able to show that you have more than sufficient liquid assets to cover the bills, including the bill to the bank.)
3) If you can't make your payments, what collateral can te bank use to sell and get its money back? (Shown by tangible assets such as your house, real estate, savings/investment accounts, etc.)
All you're really saying is that you are talking to a tax advisor not an accountant.
They are 2 different Kinda professionals, banks go bust, economies shake when banks loan out money without due process,
Have you any familiarity with the double entry system?
If you have to ask the question thats the title of this query, then methinks you do need help,
Don't get too hung up on the Balance Sheet. I think you're just asking for trouble and long explanations if you try to call your web sites assets. Lump everything that's not a physical asset into "intangible assets" and/or "goodwill."
Ok, that's probably what I need to hear. ty.
vite_rts
All you're really saying is that you are talking to a tax advisor not an accountant.
Actually, he's big money for me, and I'm small money for him. He's a CPA / CFE and runs several hundred per hour. He could fine tooth comb things for me if it were needed, but it just isn't needed. If something like that were required, then I'd just take a previous loan offer. I'm trying to find a soft spot in the middle where everyone is happy.
I understand double entry and actually have a degree in a related field.
If you have to ask the question thats the title of this query, then methinks you do need help
I wouldn't be asking for help if I didn't need help. :) I just won't find what I need in a GAAP publication, and the loan people aren't accountants anyway. I have to write for the audience. The criticism is well taken.
I'd have to teach the accountant, then teach the end reader. (Trying to avoid if posible)
No, really, you shouldn't have to teach your accountant much at all here.
If your accountant can't get his/her head round your business pretty easily and quickly then you need to find a new accountant.
There are simply tonnes of businesses that don't sell products - most web businesses are pretty straightforward from an accounting point of view.
- people pay you money, that's your revenue.
- you incur costs in providing the service, that's your expenses (e.g. wages, server hire, advertising).
- maybe you buy IT equipment occasionally, that's capital expenditure and goes on the books as an asset.
You're talking about assets such as you personally - this is a red herring. The only time I'm aware of that people can be a listed asset of a business is footballers, because of the transfer fees.
When someone say that 'you're an asset of the business', they're not using the word 'asset' in the sense it would be used on a balance sheet.
'Intangible assets' (assets that you can't point at and say "that's it, over there") do exist and these are normally things like trademarks, software, etc. You should definitely not just take your best guess at what they're worth and put that down on the books - the generally accepted accounting practise (GAAP) for intangible assets is different in the US versus the UK, and if your accountant doesn't know more about it than you do then you have the wrong accountant. Although you could Google for "intangible assets GAAP" if you really want to know about it.
In summary, my advice is: don't keep a dog and bark yourself. This is everyday stuff and if your accountant can't cope with it then they shouldn't be practising.
Hope that helps.
best, a.
Update: I've just noticed this:
I understand double entry and actually have a degree in a related fieldand realised that what I've written above could sound patronising - apologies if it does, I'm not intending it to.
Still, I think the advice is sound, a web business shouldn't be complex to explain to the bank, they deal with service businesses all the time, and if your accountant doesn't know more about GAAP for intangible assets than you do, what's the point in employing him/her?
best, a.
they're not using the word 'asset' in the sense it would be used on a balance sheet.
You're right. I never should have used that word, and he probably didn't use it either.
Ok. It looks like I'm trying to make this too difficult. I'll look into the things you suggested.
don't keep a dog and bark yourself
LOL, this is the best advice here!
don't keep a dog and bark yourselfLOL, this is the best advice here!
Thank you - it is trite but often true.
I would also recommend that oneguy avoid changing horses in midstream, biting the hand that feeds him, putting all his eggs in one basket, counting his chickens before they're hatched, or letting the b*****s get him down. ;)
best, a.
PS Rocking the boat and upsetting the apple-cart may also be inadvisable.
In my case, all I had to produce were extremely simple statements.
I used simple templates I found on the web. Cash was the only mentioned asset, aside from computer equipment.
I decided to give them what was easy for me, and see if they'd bounce the ball back to me. They were easily satisfied in my case.
I used to work in banking before the Internet snagged me and know several bankers today very well. A banker is going to ask you one main question to start, are you looking for a secured or unsecured loan?
If you are looking for an unsecured loan than it will most likely be based off your personal credit score and a track record of what the business has done in terms of income and profits after expenses. They don't want a detailed business plan or anything like that.
If you are looking for a secured loan than they do want a business plan the loan is typically for a much higher dollar value and a long and detailed track record of AUDITED financial statements by a CPA will be required.
Second main point banks don't give a crap about most intangible assets especially things like web properties. What they want to know is if you tank can they come in and physically pick up equipment, money, hard assets as it were and walk out to sell them. I have met many a banker in the "liquidation" department and these guys are not tech guys. They understand things like machines, equipment, real estate, etc. Things they can touch and feel and sell on the open market to a lot of different types of businesses.
Your best bet is to go for the unsecured loan because you are primarily putting only your name on the line so to speak and if your credit and track record are good you shouldn't have too much trouble getting an unsecured line of credit. Most banks will want to see 1-2 years of solid financial track record of the business and a good credit score from you, which they will ask that you personally guarantee the loan.
I just finished this process and although my business model is a bit different from yours the steps I had to go through were pretty much the same. They didn't care one bit about my trademarks, content, etc.
Fortune Hunter
