Bank Finance Required To Support Your Company – 11 Points To Think About
Most requests for bank finance are turned down not simply because clients are a poor credit risk but simply because they’ve approached their bank ill-prepared. Get ahead by communicating the correct info the initial time.
CASHFLOW Supply data that shows you comprehend and can manage your working capital (debtors, creditors and stock) and that the money inside your company is sufficient to cover the bank’s interest (also as other key costs like tax, dividends and replacement capital). “Cash is king” and even profitable companies can fail if money isn’t managed. Comprehend your money movements and you might even have to borrow much less.OUTLOOK Present forecasts which communicate the quantity needed, payback period, risk and return to the bank. Figures ought to be much more sophisticated than forecast sales and profit and ought to ideally show the relationship between profits, your balance sheet and money flows. Sensitivity analysis is essential to assist the bank comprehend when they risk non-repayment. Forecasts ought to usually be based upon probably the most up to date actual data.
MARKETS Explain your market. Focus 20% of your efforts explaining what has happened and 80% on what you expect to occur and why. Don’t worry, top economists occasionally get this wrong too. The point is you should show the bank you’ve thought about it, considered the likely outcomes and that you’ve a clear action plan.
MIX AND High quality OF CLIENTS Detail clients by name/industry/region/contract length. The strength of your clients and their capability to pay = the strength of your company. Building your company around one client is high company risk.
UPDATE Give the bank up to date management info particularly if annual accounts are dated. Info ought to be produced a minimum of quarterly, split into division/region and consist of profit, balance sheet and money flow breakdowns. Management info ought to be utilized to update forecast/budget data and any differences ought to be explained.
Require FOR LIQUIDITY Show the bank that your company is liquid and can survive. Tell them how rapidly you get your hands on the money and know your debt maturities, credit terms and what money is tied up in assets. Believe beyond a easy present assets/current liabilities ratio and think about your perfect liquidity position. Keep in mind too a lot liquidity means assets might be generating a higher return elsewhere.
INCOME Know your financial definitions. Are you talking about gross profit, operating profit, net profit or EBITDA (earnings prior to interest tax, depreciation and amortisation)? All are typical within the financial analysis of companies. Also make certain you are able to discuss the seasonality and cyclicality of your business.
COMPETITION Tell the bank how you’ve you performed in comparison to your competitors? Be prepared to discuss your competitors’ strengths and weaknesses. This provides confidence that you’re a proactive management team that truly comprehend the company.
ACTIVITIES Break your company down by activity/division and tell the bank which activities are performing well and which are a money drain and why. Explain how divisions complement or overlap every other and also the technique for every. Be ready with forecasts if essential.
TRACK RECORD Unless beginning up, supply a minimum of 3 years accounts to a bank (5 years ideally if approaching a new bank) and up to date management accounts. A bank will require this data for the financial analysis of the trends in ratios and margins. It’ll also give them confidence inside your management track record.
EQUITY, DEBT And also the BALANCE SHEET Communicate your risk (equity/directors’ loans) versus the risk to the bank. Know the real strength of your balance sheet by having present market values of assets to hand and full details of debt (such as off-balance sheet exposure like leases and guarantees). Be clear at the outset what security is and isn’t on provide.