Credible,Numbers,Credible,numb finance, share, loan Credible Numbers

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Credible numbers are the reports that your accounting software can produce for you. The two reports that should be in your business plan are your current Balance Sheet and your Profit and Loss Statement (P&L). Many investors may request these reports for past years, as well. A Balance Sheet lists your company's assets, liabilities and the owner's equity in the company. It's the measure of your company's financial health. It tells an investor what you are doing. It tells the investor the net worth of your company. It allows the investor to determine your company's ability to pay your debts. It will identify potential liquidity problems. An investor can also spot the degree to which a company is leveraged, or indebted. Only family, friends and fools invest in a company to pay off its debts. Your balance sheet will give a potential investor the Liquidity Ratios needed to determine if debt service is the actual goal of the equity investment. The usual tests run on your balance sheet will be Current Ratio, Quick Ratio, Working Capital and Leverage. You should run these tests to know their outcome, before you submit your business plan to a potential investor. The Profit & Loss Statement is a snap shot of your balance of money as it flows through your business over a specific period of time, such as a month or a year. The P & L break out revenues or income, expenses and profit or what is left over. A Profit and Loss statement is the easiest way to tell if a business has made a profit or taken a loss over a given period of time. The most important figure referred to in it is net profit (also called Retained Earnings) or what is left over after revenues are used to pay expenses and taxes. If you don't understand financial reports read a book on the topic, before you submit a business plan to any investor. Here are three popular titles: 1. How to Use Financial Statements: A Guide to Understanding the Numbers -- by James Bandler.2. The Interpretation of Financial Statements -- by Benjamin O. Graham, Spencer B. Meredith.3. The Guide to Understanding Financial Statements -- by S. B. Costales. There are two business groups who usually object to using crediblenumbers in business plans. Swindlers, who argue that you should sell the sizzle and not the steak. After all, they never have any steak to sell. And, entrepreneurs of startup companies who argue that credible numbers are negative numbers and thus using their P&L and Balance Sheet reports will turn away potential investors. The entrepreneurs are wrong. The potential investor should have learned in the Executive Summary that the company was a startup and thus isn't expecting a favorable balance sheet or P&L. More importantly, these two reports give the entrepreneur a chance to prove their commitment to their company. They will show the owner's cash investment in their company and their sweat equity. Commitment is one of the three "Cs" of equity investment. They are Credibility, Competence and Commitment. Using credible numbers meets the three Cs test. In your business plan, the section following your accounting reports should be your MD&A. Your Management Discussion and Analysis (MD&A) is your explanation of why the investor's money will quickly lead to cash flow or increased cash flow and profits. It should show how the potential investment would result in increased retained earnings, a stronger balance sheet and greater corporate assets. Your goal is to specifically tie the potential investment to your two accounting reports. Two examples may make my point about the MD&A. Let's say you have five production lines making widgets. You have a 20% backlog of widget orders. A production line costs $200,000. It is easy to explain in the MD&A, citing your reports, that putting in a sixth production line will allow you to meet your existing demand for widgets. Or, lets say that your company is a startup REIT (Real Estate Investment Trust). Your business plan is to buy failed vacation apartment buildings along the Cancun coast and covert them into retirement condos. Your reports will show the negative cashflow from the present apartment operation. Let's say that your plan is to convert the first apartment complex into twenty beachfront condos and ten upgraded vacation apartments. Your MD&A shows that using $200,000 of the potential investor's money, you will convert four of the apartments. You will sell them for a given amount of money, while continuing to operate the vacation apartment complex. You'll use the profit from the sale to buy the next failing vacation apartment complex and so on. By reducing your available vacation apartments by 13%, you should increase occupancy on the remaining apartments by the same 13% and thus improve your P&L Statement. You will acquire another building complex and increase your corporate assets. Sadly, credible numbers are not necessarily real numbers. As well publicized corporate failures like Enron and World.Com prove, numbers are often created. Auditors are human and subject to temptation. There are serious gaps in the Generally Accepted Accounting Principles (GAAP). Relying on unaudited financial statements is risky, if the investor fails to do some due diligence about the fund seekers honesty and competence. However, accounting reports are a far better source of business plan numbers than the illusion of cashflow projections. Article Tags: Credible Numbers, Business Plan, Balance Sheet, Loss Statement, Potential Investor, Financial Statements, Accounting Reports, Vacation Apartment, Apartment Complex