8th Certification – The financial statements of your company?
What is required to present?
All companies that apply for Certification 8a must present the following:
in. A copy of the company’s balance sheet and income statement for the current year to date. The date of these statements cannot be more than 90 days old when they are submitted to the SBA. We suggest that you provide the latest possible date.
B. If the financial statements of the company are prepared on an accrual basis and the balance sheet for the current year to date shows accounts payable or accounts receivable, you must provide the corresponding aging statements. If the financial statements of the company are prepared on a cash basis, it is not required that a statement of aging of accounts payable or accounts receivable be provided.
against A copy of the company’s last three complete year-end balance sheets and income statements or as many as they have been in business, if less than 3 years.
On what basis (cash or accrual) should the financial statements of the company be presented?
I suggest you file your balance sheet and income statements on the same basis that you filed your federal income tax returns for your business. If you prefer to provide your financial data on a different basis than what is reported on your federal income tax returns, be prepared to support any significant increases or decreases with supporting documentation should the SBA request it.
Is it okay to use tax returns as financial statements?
No, you must provide a balance sheet and income statement prepared in accordance with generally accepted accounting principles or on an accepted cash basis. If you use QuickBooks, we suggest that you use the standard report as the copy to send.
What minimum requirements must the current year-to-date balance sheet and income statement display to meet the basic 8a eligibility requirements?
The current year-to-date finances should exhibit positive net income, positive total equity, and positive working capital at a minimum.
What exactly is the SBA looking for when it reviews and filters current year-to-date financial statements?
in. Is the balance sheet and income statement for the current year to date no more than 90 days from the date of receipt?
B. Have balance sheets and income statements been prepared in accordance with generally accepted accounting principles or on an accepted cash basis?
Against If the company’s financial statements are prepared on an accrual basis, are the aging schedules of accounts payable and receivable consistent with the current year-to-date balance sheet?
D. Are there accounts payable or receivable that are more than 90 days old? If so, the SBA may discount these amounts and it could possibly negatively reflect on your company’s potential for success criteria.
me. Does the company have fixed assets? If so, are these fixed assets recorded correctly? Are fixed assets reported with depreciation or at real value?
F. Do the company’s fixed assets correspond to your type of business? For example, if the company does construction work, does it have construction equipment? If you are a general contractor and your balance sheet does not show fixed assets (hammers, drills, construction equipment, etc.), your income statement should show the leasing costs associated with renting the equipment necessary to complete your projects.
gram. If the company is a distributor, wholesaler or supplier, does the company keep any inventory and is it shown on its balance sheets?
H. Are there loans or promissory notes receivable from a shareholder, officer, or partner listed on the balance sheet? If so, has a copy of the loan or promissory note been provided within the application documentation? If the loan is from one of the applicants, has it been correctly reflected on their SBA 413, Personal Financial Statement?
I. Does the company have the ability to pay debts? (for example, minimum of 90 days of working capital)
j. Are there any loans that are questionable or that may raise control concerns? Does the business have funding from non-disadvantaged individuals that would be considered critical funding? Also, is the loan payable on demand? Do these loans reflect generally accepted payment terms? If not, is this item over-inflating the company’s assets?
k. Are reported retained earnings reconciled to previous financial statements?
l Does the company’s capital stock match that reported on the SBA 413 form, personal financial statement of the applicant?
Mister. Does the income statement show income from proper business activity (NAICS)?
no. Is “Cost of Goods Sold” included?
o Are the items recorded on the balance sheet and in the income statement consistent from one year to the next?
P. Does the income statement show an expense for employee salaries? Does it appear that the applicant is not the best compensated? Are there signs of excessive withdrawals?
q. Does the income statement show an insurance expense and, if required, a worker’s compensation expense?
A. Are there large outsourcing expenses that seem questionable? A service-related business should not outsource more than 50% of the labor-laden portion of a contract. If you are a construction company this percentage is 85% and 75% for the construction trade (plumbing, electricity, etc.)
What exactly is the SBA looking for when it reviews and analyzes your year-end financial statements?
in. Are the year-end balance and income statements provided from the beginning of the calendar or fiscal year to the ending date of the fiscal year?
B. Does the income reported in the income statements appear to be in the same line of business from year to year?
against What pattern do income, gains, and losses show? Is it necessary to ask for clarification, such as an explanation of the reason for a downtrend or a sudden drop in income?
D. Are there discrepancies between the company’s tax returns and the financial statements? Are these discrepancies based on cash versus accrual? If not, is reconciliation required? Does taking cash versus accrual reconcile accounts?
me. Do the balances correspond to the tax filing calendars? For example, are there shareholder loans on the tax return schedules that are not reflected in the financial statements?
F. Do the financial statements and corresponding tax returns reflect any conversion from accrual to cash accounting?