So you’re starting a business. What should you do first?
There are a lot of things that go into starting or purchasing a business. One of they key pieces to this puzzle is financing. Where do you start and what information do you need? Do you need cash upfront or access to cash?
You’ll want a business plan.
A great place to start is with a business plan. Make sure you have put together a business plan and be sure to include a financial projection based on information from similar businesses. This shows you’ve done your homework on the industry. It also shows you have a realistic understanding of the earnings in the field.
You will also want a personal financial statement prepared and up-to-date along with your tax returns for the most recent three years.
This gives the lender an idea of where you’re at financially and gives an in-depth look as to the affordability to you as a borrower. It shows that you have the necessary funds for the down payment or other equity that can be used. That can also help answer the second question that was posed at the beginning of this article. Then it comes to the business itself. Is this purchase going to include blue sky? Blue sky simply refers to the part of the business that has no physical value, like the name, reputation and future potential of a business. Are there any physical or tangible assets with the start up or purchase? You will want an inventory along with values of equipment and assets that are included in the purchase.
If you’re purchasing an existing business it’s always best to get a copy of the current financial statement, profit and loss statement and balance sheet. Package all that up and stop in to your financial institution and talk with your lender. There are other things that will potentially come up in the process, but that is a pretty clean look at what you can expect while pursuing financing for your business.