How to Improve Your Chances of Getting a Loan With a Bulletproof P&L Statement

If you’re applying for an SBA loan program, a P&L statement with forward projections and historical data is a must-have. Small businesses are inherently a high-risk investment for lenders, so the more you can do to prove the integrity of your business and your data, the greater your chances of securing a loan.

In fact, alongside impeccable credit, a solid business plan, a strong personal resume and a strategic marketing plan, a P&L statement (also known as the income statement) is one of the top five small business loan requirements, according to Kabbage.

Here are five things you can do to bulletproof your P&L statement and be on your way to securing the financing you need:

1.  Understand what your P&L statement can do for your business

Your P&L statement is a summary of the profit and losses that your business has incurred during a particular time period. Basically, it’s revenue in, less expenses incurred (cost of goods sold, OPEX, and depreciation).

In addition to showing how profitable your business is, your P&L statement also sheds insight on what money is left in the business to pay your salary, clear debts, fund growth or hire an employee. It won’t, however, show if you have enough cash to pay your bills. (Refer to your cash flow statement for those details.) In a nutshell, it’s your financial health report card.

2.  Take advantage of available tools

Getting started with a P&L statement isn’t the easiest thing in the world. If you need help, download SCORE’s profit and loss statement template (.xls). This includes all the necessary calculations to help you forecast net profit. To streamline the process completely (and ensure reliable data), consider cloud accounting tools. Because they automatically feed in data from other reports, cloud software eliminates the hassle of data entry, synchronization and maintenance.

3.  Set profitability goals

How much profit do you want to realize from one month or quarter to the next? Use your P&L statement to track performance against those goals and use the data to glean insights. For example, if revenues were down one month, is there something you can do from a marketing perspective to generate more sales? If expenses are running high, make sure you understand why and plan accordingly.

4.  Set projections

Your lender (and the SBA) will want to see your projections for future profits and losses, plus a business plan that explains how you intend to make your numbers. Plan on projecting out a minimum of one year into the future. Three years, however, is ideal because it shows the impact that external financing will have on revenues and profits. For year one, have a clear sense of your monthly projections; for the remaining years, it’s usually okay to focus on quarterly targets.

5.  Review it regularly

At a minimum, review your P&L statement on a monthly basis. It is a good idea to get into the habit of checking everything on a weekly basis, so you can stay on track and make necessary adjustments to your business plans. Consider hiring and accountant to keep an eye on your key financial statements; the benefits will almost outweigh any fees. Things to look out for include:

• Increasing sales, but declining profit. This is a sign that something is wrong. Are your costs too high? What about your margins?
• Stationary sales. Look for opportunities for growth in new markets, product lines or lead generation campaigns.
• Increases in overhead (utilities, rent, insurance, etc.). Look for ways to keep costs low by shopping around.
• Increases in the cost of goods sold (COGS). Find out why.