Lets face it, your business has a problem.  But, I am sad to say, more accounting is not going to help.  Better financial statements will not increase revenues, decrease costs, or help you really understand what drives your business. 

Financial statements are for External readers.  They are used by banks, bonding companies, investors to know the "big picture" of your business.  You will likely not get a loan, or a construction bond without a financial statement prepared in accordance with Generally Accepted Accounting Principals. 

Guess what?  You are not likely to get a bank loan or a construction bond even with a financial statement.

So what is the purpose of your accountant preparing one of those statements?  Inertia, tradition, or they just haven't been told to stop.  But let's face it, your business has so many more challenges than to spend precious resources on creating a report no one reads and that does not really help your business grow.

The Constant Profit Advisors does not believe in Generally Accepted Accounting Principles for running your business.  Your accounting needs to give you effective timely information to help you with decision making.  You need to know if your pricing decision is helping or hurting your business; if a sale has added new customers, or if your costs are growing and consuming cash.

However, knowing what is required when the time comes to see the bank helps you plan how to present your business in the way the bank wants to see it.  So we present the following information for your benefit.  But please, do not try to run your business according to financial statements, nothing good ever comes from it.

Banks and bonding companies today require businesses, and even many individuals, to turn over financial statements at least annually.  The financial statements are prepared according to Generally Accepted Accounting Principles (GAAP) and are another compliance reporting requirement to be in business.  However, the preparation of financial statements is somewhat voluntary as it is not mandatory to borrow money.

However, most businesses do borrow money to finance new assets and working capital to grow at faster rates than would be expected using just the owners money.  Therefore, expect to turn over financial statements to the bank to support your borrowing requests.

There are 3 levels of CPA involvement with your financial statements.  The banks in Portland, Oregon we have spoken with want as much assurance as possible that the financial statements they are looking at are free of serious errors and misstatements.  As the amount of money you borow increases, so too does the banks expectation of assurance from the CPA.

The three levels of CPA reporting are Compilation, Review, and Audit.  We define them here for you:

→Compilation - Provides no assurance on the financial statements, other than a CPA has read them (actually prepared them, but technically not required).  From the CPA's standpoint it is defined as - "I believe everything you tell me."

→Review - Provides what is known as negative assurance that there are no major errors or accounting problems.  It provides negative assurance by the CPA stating that "nothing has come to their attention."  The CPA in a review analyzes the numbers and compares them both to historical information and to similar types of businesses.  From the CPA's standpoint, it is defned as  - "Trust, but verify."

→Audit - Provides positive assurance that the financial statements are free of material defects.  The CPA not only analyzes, but also confirms information with outside parties and observes management practices.  It is a very intrusive procedure.  From the CPA's standpoint, it is defined as "Nothing you say is the truth and I am going to prove it."

Why is this important?  Because, as you can imagine, the more intrusive the investigation, the more costly it is for you.   Banks realize this and do not want you to spend anymore money than is necessary to keep the bank out of trouble.

Would you like more information on how the Constant Profit Advisors can help you with your understand your business' accounting needs?  contact us for more information today. 

Banks generally need something in the file to prove that you can pay the loan back.  We have talked with dozens of Portland and Vancouver area banks to get their policies and, while no 2 banks are identical, the following are good rules to expect when talking with banks about borrowing funds:

Under $50,000 of total debt

The banks will usually accept business and owner tax returns.

Between $50,000 and $500,000

Banks require Compiled financial statements.  Generally these can be without disclosure, however, if your business has complex arrangements, expect to do full disclosure financial statements.

Between $500,000 and $3,000,000

Banks require Reviewed financial statements.  Reviewed financial statements always have full disclosure and sometimes have required supplemental disclosure.

Above $3,000,000

Generallly banks required audited financial statements at this amount of borrowing.  This is somewhat dependent on the type of asset used to secure the asset.