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|Posted on June 14, 2016 at 4:33 PM||comments (23)|
What Lenders Look For On Your Tax Returns
If you’re applying for a short-term loan with a repayment period of 18 months, the lender
will be much less interested in your tax return than in your bank statements and
deposits. The debt won’t be outstanding for all that long, so these lenders just want to
make sure that you’re pulling in enough revenue to cover your daily or weekly
If you’re applying for a loan with a longer term, the lender will be interested in your
business’s profitability. They want to make sure you’re making money over the long
term, so your strong financial track record and balance of profits and losses will become
The most important part of your tax returns, in the eyes of any lender, is going to be
your income. But it’s important to understand the other parts of the paperwork that
you’re turning in as part of your loan application: your tax returns are one of the primary
representations of your business and its finances.
What Is Important?
The first and most important thing is going to be that first section on any tax return: your
Tax returns will show a lender your annual revenue which is a key metric for them in
deciding whether or not they should offer you a loan.
Revenue is the total amount you pulled in from sales less the cost of those goods and
any returns in order to give you your gross profit. This number will get added to any
additional income you received such as dividends or interest to then provide you with a
total income figure.
Many lenders will ask you to submit returns from multiple years: the SBA, for example,
asks for 3 years’ worth of tax returns for a 7(a) loan application. This gives lenders an
idea of how your revenue has changed over time. If it’s been stable or increasing,
that’s a good sign: it means that you’ll be more likely to make repayments on time.
Usually, lenders want to see a debt-coverage ratio of at least 1.2, although 2.0 is even
better. It basically confirms if you have the cash flow to cover your debt payment—so if
you’re applying for a loan with a monthly payment of $1,000, your monthly cash flow
(sales-expenditures) will need to be at least $1,200.
These are your expenses which include everything that costs you money to operate
These deductions will be subtracted from your total income in order to come up with an
“ordinary business income” or “taxable income” figure.
For some businesses—especially those with sharp accountants (like Cypress
Consulting) who’ve saved them money by generously claiming deductions—this final
income figure will look low and may even show a loss. This is always great for saving
tax money, but not always so great for loan applications, because you’ll want to show
the highest possible income.
There is a method lenders use to adjust for this where they add-back certain expenses
that are deductible for tax purposes but generally do not dictate the operating costs of
the business. Some of these expenses are depreciation, interest and officer
If you’re a sole proprietor who’s filled out a Schedule C, you don’t need to worry as
much about these add-backs. Employer compensation won’t be taken into account, for
example, because your business’s profit is going straight into your personal tax
reporting. It’s much less complicated.
On a 1065 or an 1120 tax form, you’ll see a section called “Schedule L,” which is a
balance sheet of your assets and liabilities. If you are a sole-proprietor, you would need
to provide a separate balance sheet from your accounting system to show your
businesses assets and liabilities.
Lenders will gather information about your loans, your accounts payable, your real
estate, your stock—any figures that express your assets, liabilities, and shareholder
equity—at the beginning and end of the tax year.
The lender could also request a more detailed balance sheet from you. This is where
bookkeeping software like QuickBooks can prove extremely useful because your
business activity is kept in detail and easily accessed.
If you’re a corporation filling out an 1120, on line 12 you’ll see that you have to report
“Compensation of Officers.”
It will also refer you to Form 1125-E, which is a more detailed form that you’ll need to fill
out and attach if your total receipts are over $500,000.
Also known as “Schedule E,” this form could be extremely important for loan
applications because it will show ownership percentages. With many loan applications,
the lender will look at the personal finances of any owner with more than 20%
ownership. They might even require a personal guarantee.
In Summary, Lenders want to make sure that you’ll be able to make your payments on
time without a problem for the length of the loan, which requires solid revenue and cash
|Posted on May 31, 2016 at 7:07 AM||comments (11)|
There are new leasing standards that could affect your business.
If these new standards affect your business, call Cypress Consulting today for our professional experience and knowledge in leases!
|Posted on November 4, 2013 at 1:41 PM||comments (20)|
Marketing can be compared to running a race. It's better to do a little of it on a consistent basis than to do too much all at once. The running comparison is if you're out of shape and try to run 10 miles at once, you just make yourself sore and less likely to get out there again the next day. On the other hand, a short run a few times a week is much more likely to produce results – and the next day, you can go a little further.
REMEMBER THIS: There is nothing you can do to turn around your image overnight.
The secret is to do a little at a time, and to do it consistently. In fact it's often more effective to increase the frequency of what you're already doing than to embark on a completely new effort.
A good way to increase the consistency of your marketing is to think about your current efforts;
Do you have a company newsletter or e-newsletter?
Do you do any advertising: Direct mail or e-mail?
Public speaking? Webinars?
Write down all that you currently do, then get a calendar and enter the launch dates of each marketing effort - when does your ad run, e-mail send dates, networking events etc.
Now, step back and take a look at your new marketing calendar. Do you see any gaps? Any dates where you've got multiple marketing efforts piled up? If so, you may want to think about how to fill in those gaps. You don't necessarily have to think up a new marketing effort. In many cases, it's more effective to simply repeat your existing efforts more frequently.
This is a great way to increase your frequency and consistency. And by running fewer marketing efforts more frequently, you may find that you get better results in less time. Multiple contacts are more effective than any single event.
Remember, improving your marketing effectiveness doesn't always mean trying something totally new. Instead, grab your calendar and see if you can simply do what you're already doing more consistently.
So your marketing plan is like running a marathon; slow and steady wins the race. Best of luck making it to the finish line!
|Posted on May 1, 2013 at 11:47 AM||comments (29)|
If you're not sure where to start and what sustainability measures are right for your company, here's some insight to help you decide which green initiatives will pay off for your business and which may not be worth the time or expense.
Start with the Obvious – Use Less of Everything and Track Savings
Using less of everything – water, electricity, fuel, paper, printer ink – makes common sense. Similarly, ask yourself some basic questions: Can I recycle? What about introducing a lights out policy in meeting rooms that are not in use and in the building at night? Does it make sense to let my employees telecommute?
As you look for areas where you can make savings and be greener, try it out for a month and compare your business expenses to previous months. If you can demonstrate clear dollar savings, then getting the entire company behind you is going to be a lot easier. You can also use the savings you have made to fund bigger sustainability improvements. If you run a service business such as a hotel, implement a towel re-use policy or a key-card activated energy-saving system that powers down the room when a guest exits. These can reap huge savings. Look for areas that make sense to your business. For example, can you dispose of less by buying re-usable versions of the same product? For example a California hair salon switched from using disposable latex gloves worn by stylists to color hair – which set them back nearly $3,000 a year – to investing in heavy-duty reusable gloves at a cost of a couple of hundred dollars.
Check out these “Sure Energy Savers” tips from Energy Star for ways to realize quick savings now.
Invest Now to Save in the Long Term
If you lease a facility, then it may not make sense to spend money greening your building’s infrastructure, aside from easy-to-implement fixes like using energy efficient light bulbs or equipment. However, if you intend to be in the space for several years, then it’s worth crunching the numbers to see if it’s worth making longer-term green fixes such as upgrading your AC system. If you are going to be in a facility for five years and it will take two years to pay back, why not do it? Even modest changes can make a big difference and be paid off quickly. Fixes such as improving insulation and capitalizing on natural light by using frosted windows instead of blinds has the potential to reduce your electric bill by up to 80 percent – a massive saving for small businesses. Of course this all depends on your location and other variables, but quick fixes such as these do have the potential to generate 15-20 percent in savings.
Get Help Ascertaining the Savings of Pricier Sustainability Upgrades
You don’t have to go it alone; there are many organizations that can help you determine which sustainability measure will help you reap the best return on your investment.
The Bottom Line
While green measures and investments can have both short- and long-term financial payoffs, the benefits are not just in dollars saved. If your company places a high value on green practices, the feeling that “we are all doing good” can really set you apart both to your employees, your customers and community as a whole.
|Posted on April 24, 2013 at 3:10 PM||comments (13)|
The sad fact is that over 50% of small businesses fail. You want to avoid becoming part of that statistic.
In addition to hiring a reputable bookkeeper/accountant, here are 5 things to look for in order to help you do just that:
1. Ineffective accounting. Poor money management is one of the key reasons small businesses fail. This can manifest itself in a variety of ways. For example, a business can falter when the owner insists on doing the accounting him/herself when that is not his/her specialty. These business owners need to realize that they should focus on what they do best: supplying the product and/or service. Outsourcing the accounting and/or bookkeeping to someone who could become the business’s profit center expert is your best bet.
2. Insufficient sales. This is a serious problem that a good accountant or bookkeeper would recognize when managing a business’s finances. When business owners also recognize this problem they can take action to resolve it. Is there really a need for this product and/or service? Are they charging too much for their products and/or services? Are their marketing efforts lacking or misguided?
3. Unpaid creditors. Another red flag that a business is failing are unpaid creditors. And that problem escalates when one of the creditors becomes the IRS. Owing the government money in addition to key creditors can make business owners feel like they’re being chased by a semi; it’s difficult to get ahead when you’re weighted down by debt.
4. Nonpaying clients. Worse yet is when you’re doing a lot of work for clients who are not doing a lot of paying. And this coupled with unpaid creditors makes it nearly impossible to become a profitable business. In order to cut back on the number of nonpaying clients, run credit checks on potential clients before you admit them to your roster. You can also take steps to collect payment by offering a pay online feature for ACH and credit cards.
5. Poor marketing. This is a weakness that plagues many small businesses. Unless the small business is marketing firm, chances are the owner does not feel he/she knows enough about marketing to put forth a solid and effective marketing plan. And while good products and/or services sell themselves in theory, the reality is that costumers can’t purchase something unless they know it exists and who is selling it.