Securing a business loan can be an exciting step in the growth of your business. But did you know that loans typically require a specific process to be properly recorded in your accounting system? Not to worry; your loan statement will provide the information needed by your accountant to get the loan booked properly.

To start, you’ll need to locate the following pieces of information about your loan:

• Total amount borrowed
• Date of loan
• Date of the first payment
• Payment amount
• Term of loan
• Number of payments
• Interest rate

The full amount of your loan should be recorded as a liability on your business’s balance sheet. The offset is either an increase to cash or the recording of new assets like a car, truck, or building.

Each payment you make contains two components: interest and principal. Interest is an expense and is recorded in the Other Expenses section of your profit and loss statement. It will reduce your profit. Principal is the amount you pay toward paying off the loan. It reduces the liability account where the loan is recorded. While Principal does not affect your profit, it does improve your liquidity with each payment you make.

The interest and principal amounts won’t be the same for each payment. Earlier loan payments consist of higher interest and lower principal amounts. As you reach the end of paying off your loan, the interest portion becomes smaller and the principal larger. An amortization schedule shows you the exact amount of interest and principal for each payment. You or your accountant can create a loan amortization schedule in Excel.

Each time you make a payment, cash is reduced for the entire payment amount. The offset is split between interest expense and your loan liability, using the amounts in the amortization schedule. When you code your loan payment, you can use the amortization schedule to get the correct amounts for both of those accounts.

In a simple service business with no assets except cash, your cash balance can mimic your profit level. However, when you introduce loans and new, non-cash assets with depreciation expenses, that won’t be the case. You might wonder why you have no cash and more profits, or vice versa. This is why it’s a good idea to understand how these transactions affect your Balance Sheet and Income Statement as well as your business’s overall financial health.

At year-end, your accountant can make correcting entries if needed between the loan balance and interest expense. 

If you failed to make payments or made them late, your accountant can make those allocations as well using manual journal entries.

Often, when you get a loan, you’re also acquiring some type of asset, such as a car or land and building. This asset should be recorded on your books correctly as well. You should have some type of closing statement or purchase contract that has the details for your accountant. Your Accountant will also compute and record the correct amount of depreciation for the asset type.

Your accountant can speak with you in more detail about your specific situation and better explain the interplay between cash and profits. We use the Statement of Cash Flows to reconcile profits to cash. Want to learn more about that financial report? Reach out to New Business Directions.

Incidents of cybercrime have been problematic for a long time, but since the onset of the pandemic, we’ve seen these incidents increase not only in frequency but in elaboration, too. Unfortunately, phishers and hackers have become more adept at successfully targeting small and midsize businesses with their efforts. 

Previously, we’ve addressed how you can improve the security of your online accounts. However, if your organization’s reputation depends on maintaining the security and privacy of customer records, then this insurance is a must. In today’s climate, it’s no longer a matter of “if” but “when” your private business information could be breached, and to what extent. However, with the right precautions in place, you could reduce–and possibly even eliminate–such risk.

Finding the Right Insurance

The best place to start is your current insurance agent or a general insurance broker that you trust. Cybercrime policies are separate policies that cover specific acts, and you will need to read the policy carefully to determine exactly what you are protected from. You should also distinguish between personal and business policies; you may want both.

In a business policy, some of the items you’ll want to consider protection against include:

• Data breach
• Ransomware attack
• Spoofing and identity theft
• Wire fraud
• Civil fines
• Lawsuits
• Costs of notification, reputation repair, forensics and data restoration, credit monitoring, and other potential damages

A good policy will cover some or all of these costs:

• Business interruption costs
• Data breach costs
• Extortion costs
• Crisis management and public relations costs
• Data recovery costs
• Computer replacement costs
• The cost of reputational harm

Like any other insurance, you will need to complete an application to obtain a quote. Some of the standard questions you’ll be required to answer include:

• Type of products and services sold in the business
• Type of electronic data stored on your computer systems
• Whether laptops are password-protected
• Whether you have written network security and privacy policies in place
• Whether you have physical security procedures in place
• Whether you have the most current software and processes to keep it upgraded
• Whether you have backups
• Whether you monitor unauthorized attempts to access systems
• Whether you are in compliance with PCI DSS (Payment Card Industry Data Security Standard), HIPAA (Health Insurance Portability & Accountability Act), and GLBA (Gramm-Leach-Bliley Act)
• Whether you have a written document retention and destruction plan in place
• Whether you have encryption enabled
• Whether third parties are involved in data handling
• Whether you have a process to check copyrights of materials you use
• Whether you have a risk management education program for employees
• Your current insurance policies
• Whether you’ve had a breach in recent years
• Whether you’ve had any lawsuits or claims in this area
• Whether you use a firewall
• Whether you use anti-virus protection
• Whether you have an employee/third party off-boarding process that terminates access to computers and data

As you can see, the application process itself is an excellent way to “cross your Ts and dot your Is” when it comes to putting safeguards in place for your business. And, of course, your premium will likely be less expensive when you have these precautions and systems in place. It goes without saying that your premium will be less expensive if you get insurance before you are attacked so that you have a clean application.

A key aspect of owning a business is managing enterprise risk effectively. A cybercrime policy will go a long way toward protecting your hard-earned investment and offer you peace of mind, knowing that your business is protected.

There’s more to being financially resilient than simply saving enough money for a rainy day. One aspect of being financially responsible is maintaining good financial records – and making sure the people who will need access to your records, like family members or key business partners, know where to find them if something happens to you. Here are some ideas for your consideration.

Systems and lists

You’re probably managing your accounting through a digital platform like QuickBooks, but what about other tools that supplement your needs? Do you have a chart of your accounting tech stack and ecosystem? What about Excel worksheets that supplement your use of QuickBooks? Is it clear where these can all be accessed? Do your loved ones know how to find these items if something happens to you?

Now that so many things are digitized, it’s not as easy for others to access the intel required to run your business in your absence. Digitization is a critical advancement in business management, but it does make things a bit trickier for your representatives to step in. For example, your financial records might be in a dozen different places on your computer or the cloud. Being organized and planning for a smooth financial future for your loved ones means making a list of instructions on how to access all of your financially-related digital assets. Keep in mind, this information is highly sensitive and should not be shared until it’s absolutely necessary.

Your list might include:

1. Contact information for your accountant, who will likely have access to your cloud-based accounting software.
2. A list of banks you do business with.
3. A list of credit cards that need to be paid monthly.
4. List of government-related accounts, such as social security and IRS.gov.
5. List of regular monthly bills, such as utility, credit cards, and rent, plus their associated email accounts.
6. Details of regular monthly income received.
7. Where to find financial files on your computer or cloud, such as tax returns, bank statements, and real estate closing documents.

A password management system like LastPass can help you share sensitive and critical data securely and even at a moment’s notice. We can’t stress enough how important it is to keep this information private and secure, and under no circumstance do we recommend sharing this information before it’s necessary.

Backups

If your computer crashes, will you be able to recover your financial files? Taking periodic backups will prevent a loss of records. In the IT world, there’s a common saying that “two is one and one is none.” This means that if you only have one backup file and it fails, you’re left with nothing. Having two backup systems ensures that the data is still preserved even in the event of one failure.

What to keep in case of an audit

You hope it will never happen, but if it does, are you prepared for an audit with the IRS or a state agency? Do you know what records to keep and for how many years?

Financial confidence

Having good documentation, sharing financial knowledge and goals with the right people, and making a backup plan will boost your financial confidence. You will be more prepared than most households when it comes to financial safety.

How financially resilient do you feel? Take into consideration the above ideas to help you stay one step ahead.

The past few years have seen significant kinks in the supply chain due to several reasons: inconsistent buyer behavior, source material scarcity, government shutdowns, and worker shortages, to name a few. What can a business owner do to protect their businesses from shortages that result in revenue loss? Let’s take a look at a few ideas.

Source New Suppliers

Being dependent upon only one supplier for a critical item is risky. Increase your options by finding new suppliers to use as backups or alternates whenever you can. While it’s admirable to buy local, it’s not always possible. Expanding your network will provide you with a lot more flexibility, even if you have to pay a bit extra at times.

Understand Your Timeline

How accurate is your prediction of lead time? Are you providing enough time for ordering and delivery before you need the part in-house? Timelines have changed a lot in the last year. Spend some time reviewing and recalculating lead time if you need to.

Fine-Tune Forecasting

Get skilled at forecasting so that you can anticipate and prevent inventory shortages before they occur. We can help you set up spreadsheets and generate dashboard reports so you’ll have better information for decision-making in this area of your business.

Develop Relationships

The more dependent your business is on a particular supplier, the more you want to develop that relationship. Adding that personal touch might not help you get your orders faster, but when troubleshooting is needed, you’ll enjoy the extra help that a personal relationship can provide.

Increase Communication and Collaboration

Increase communication with your suppliers so they can manage their own timelines and supply chains. Provide them with accurate forecasts and let them know how they can better meet your present and future needs. Remember, it’s within their best interests to serve you as best they can, too.

Audit Inventory Records Frequently

If your inventory balances are only adjusted once a year, inaccurate inventory numbers will likely cause problems. Instead, find ways to take inventory more often or, at the very least, increase the accuracy of inventory balances. The savings will be worth it; you’ll have fewer unexpected out-of-stock or back-order situations that could cost not only a loss in sales but customer loyalty.

Proactively Manage Shipping 

There may be times when paying rush charges on shipping is justified. Actively managing shipping and in-transit items will help you keep a handle on this. When possible, line up alternate shipping methods in the event that one method becomes unreliable. Alternate shipping methods are especially advised with overseas shipments where more can go wrong.

Create a Supply Chain Task Force

If supply chain issues are critical in your business and have cost you profits in the past, it might be time to create a dedicated team to manage and prevent crises. Consider putting together a group of employees who can be responsible for strengthening your supply chain.

Try these ideas to smooth out supply chain woes in your business.

Most large businesses have developed mission, vision, and values statements to help guide them and inform stakeholders about the company’s strategic direction. Going through this strategic exercise is a wonderful idea for even the smallest business as well.

A company’s mission statement lists its core purpose and desired impact for employees, customers, owners, and other stakeholders. A vision statement defines what the company wants to be. A values statement describes what the company stands for.

It’s a perfect activity for business owners to answer and remember why they built the business in the first place. It also serves to correct and re-align the trajectory of the business.

Mission Statement

Start by asking what impact you want your business to have on the outside world. Here are some mission statement examples that are frequently quoted:

• Harley-Davidson: More than building machines, we stand for the timeless pursuit of adventure. Freedom for the soul.
• Disney: The mission of The Walt Disney Company is to entertain, inform and inspire people around the globe through the power of unparalleled storytelling, reflecting the iconic brands, creative minds and innovative technologies that make ours the world’s premier entertainment company.
• Nike: Nike exists to bring inspiration and innovation to every athlete* in the world. Our purpose is to move the world forward through the power of sport – breaking barriers and building community to change the game for all. *If you have a body, you are an athlete.

Notice how each one is short and simple to understand. They focus more on the big-picture benefits they bring to customers and less on how they will get there.

To write your own mission statement, ask yourself what your business’s purpose is and how you will impact your customers’ lives with your products and services.

Vision Statement

A vision statement is big, bold, and futuristic. What do you want your company to be?

Here are a few examples:

• Harley-Davidson: Building our legend and leading our industry through innovation, evolution, and emotion
• Deloitte: We aspire to be the Standard of Excellence, the first choice of the most sought-after clients and talent.
• Amazon: Amazon strives to be Earth’s most customer-centric company, Earth’s best employer, and Earth’s safest place to work.

What do you want your company to become?  That’s your vision statement.

Values Statements

Values statements are typically a set of adjectives or statements that answer what the company stands for. They can be in the form of leadership principles, core values, or a similar format. These days, they often include values on environmental, social, climate, global, human rights, diversity and inclusion, sustainability, and many other current issues. They can take the form of additional strategic statements on each one of these issues.

Sample values statements can be found in the company’s annual report as well as the About or Company section of their website.

Here are some examples:

• Harley-Davidson Principles:
  • Communication – Communicate with purpose, structure, facts and inspiration
  • Agility – Accelerate, innovate and thrive in a rapidly changing environment
  • Impact – Focus on impact, not process, and be outcome driven
  • Simplicity – Pursue the simplest path to achieve each outcome
  • Speed – Don’t let perfection get in the way of process and pace
  • Culture – Be fair, honest, positive and creative. Strive to win and have fun.
  • Courage -Take risks and go against the norm
  • Judgment -Think strategically and make informed decisions
  • Focus – Focus on a short list of meaningful opportunities that build desirability
  • Lean – Maximize impact with limited resources

• Coca-Cola Behaviors We Focus on:
  • Curious
  • Empowered
  • Inclusive
  • Agile

• Merck Values:
  • Patients first
  • Respect for people
  • Ethics and integrity
  • Innovation and scientific excellence

Your mission, vision, and values statements will help you communicate the qualities of your business. It can help in hiring to see if a candidate’s individual values align with the core corporate values, and with customer acquisition when prospects see what your company is about. It can also help you remember your roots and why you work so hard every day.

We’d love to hear from you when you write up your mission, vision, and values statements.