Article by Roger Schlueter
Individuals that decide to Start a New Business sometimes forget to Project the Balance Sheet Statement. If you obtained funding from SBA then you, the borrower, will be forced to create a Projected Balance Sheet and a Projected Income Statement.
The reason the construction of the Balance Sheet seems so hard is because you need to know your Accounting Debits and Credits. This means that for every entry in Accounting there are corresponding entry’s for Debits and Credits. Lets look at this problem as if we had started a New Business. The following Balance Sheet will be created on our business, ” Rogers Whiskey Supplies”. Needless to say that Roger sells Whiskey Stills and the Related Supplies.
Roger has a hobby of making Wiskey and has never obtained a license or sold any of his Equipment or Recipes to anyone. He has about $50,000 in Equipment and another $10,000 in Supplies for sale in his business. He has decided to obtain a SBA Loan from his local banking institution that is owned by Mr. Ebenezer Scrooge. The loan will be in the amount of $150,000 and will be used for Equipment ,Inventory, Working Capital and Loan Fees. The Equipment will be $125,000 and the Inventory will be $20,000 and $2,000 in Working Capital, with the Guarantee fee of $2,499 and Bank closing Costs of $501.
The Bank has asked Roger to prepare a Projected Balance Sheet to go with his Projected Profit & Loss Statement (Earnings Statement). This is how Roger tackled this problem:
Balance Sheet
Assets Liabilities
Cash $ 2,000 Accounts Payable
Accounts Receivable
Inventory $ 30,000 Current Portion Loans $ 10,884
Other Assets $ 3,000 Other Liabilities
Total Current Assets $ 35,000 Total Current Liabilities
Equipment $175,000 Loans $139,116
Total Assets $210,000 Total Liabilities $150,000
Equity $ 60,000
Total Liab. & Equity $210,000
Let’s start with what we already have and that is $50,000 in Equipment and $10,000 in Supplies. We can do ahead and put those on the Balance Sheet as $50,000 in Equipment on the Assets Side and $10,000 in Inventory on the Assets Side also.
Ebenezer Scrooge actually approves our loan and goes though the SBA and has the loan Approved by SBA and is ready to close the loan and fund out project.
The loan amount is $150,000. This is broken out into the Current Liability that is due in the next year and the other part of the Loan that is due in the future. So $10,884 is a Current Liability and the remaining $139,116 is put under Loans. This money was used to purchase several things: we had Working Capital of $2,000 which is the same as Cash and is put under Cash. The Inventory is combined with Rogers Supplies and put under Inventory for a total of $30,000 in Inventory. The Equipment that was purchased was $125,000 and was combined with Rogers Equipment of $50,000 for a total of $175,000 in Equipment and put under Equipment. Now I’m done! Not! you say, what about the $3,000? That was Fees for the SBA Guarantee and Bank Closing Costs for a Total of $3,000 and put under Other Assets.
That’s It! Not too bad for Accounting stuff. Remember the Assets always Equal the Liabilities plus the Equity. The Equity just happens to be in this example the Starting Equipment and Inventory that Roger put into the project but it is not put directly into Equity, it is derived by taking the Assets and subtracting the Liabilities and that number is your Equity.
Please Address any questions to this Blog or to roger@rogerschlueter.com or get additional info and contact info at www.schlueterfinancial.com