4 financial basics can help your business build a strong foundation 

Idahoans have an entrepreneurial spirit, and it seems more and more are venturing out to pursue their dreams of owning a small business. From October 2021 to October 2022, Idaho has seen more than a 6% increase in business applications. With this growth, even more business owners face the challenge of understanding the basics of business financials to equip themselves with the knowledge they need to help their plans succeed.

Every entrepreneur needs to understand the basics of business financials. They are the building blocks for a solid foundation to help your business continually grow. Regardless of whether you already own your business or are in the process of pursuing your dream, following these guidelines will help you on your journey:  

1. Establish financial goals and timelines. First, come up with monetary projections by asking yourself what the expected revenue will be and what it will cost to achieve that goal. Next, draft a realistic timeline of how much it costs to generate that revenue goal, and try to predict how the timing of that cash flow will impact your future business.  
2. Gather important data like income, expenses, assets, liabilities, equity and projections. An income statement, also known as a profit and loss (P&L), is a statement that documents both income and expenses that the business has generated. Subtract the expenses incurred to generate revenue, and what is left over is the business’ net income or profits. Another essential document is a balance sheet, which gathers assets, liabilities and equity. Assets are the equivalent of your liabilities plus equity.  
3. Find a trusted financial advisor to guide you along the way. Business goals, timelines and tools like financial statements are not meant to be intimidating, although they can be for many new business owners. It may lighten your load to share your goals with a financial advisor who frequently works with small business owners, who can provide clarity and help you keep your business dreams and goals on track. Your business and personal financials will be one of the first requests they make once you have established a relationship and decide to apply for a loan. You will have to fill out an application with general business information and Small Business Administration (SBA) forms attached. As part of this process, experts at credit unions, banks and online lenders can explain more about what kind of business loans, including SBA loans, can help you. While lenders can vary in the types of loans they offer, they can connect you with options to fit your needs, whether it’s purchasing real estate, equipment or capital.  
4. Ask questions. During the application process, be sure to ask about rates, fees and loan structure. Find out if there are any prepayment penalty fees, whether the interest rate is variable, and if so, how often does it adjust? Asking questions can increase the odds of you getting the best loan and lending experience that best meets your future business’ needs.  

Knowing the basics of business financials and finding people that can help you along the way is critical to all business owners, new and old, because you can evaluate the financial health of your business at a glance.  

— Lindsay Hendrix is an SBA loan officer with the Mountain America Small Business Lending team.