Fact Coming Up –
A lender has never been given a set of financial projections which did not show that the loan being applied for was affordable.
Strange then, that any loan should ever go bad?
Back To The Real World
We all know that financial forecasts and financial projections are a best guess, they are rarely accurate and too often are tinted a slight rose colour. It takes courage to be 100% honest when the result is not ideal.
What we do when we receive client projections is to ask questions, it is about getting an understanding of realism, likelihood of achieving them and what might stand in your way.
Remember, that what we do will probably be matched by your banker, investor, financier or any creditor. Therefore, where we do it first we can often address the issues and help make life easier.
To give a broad overview, the following are the types of question we ask, and that we encourage you to ask yourself –
- Which individual factor is most likely to result in the forecasts not being achieved
- How will economic factors affect you
- Is inflation an issue
- Is pricing an issue
- Are the forecasts reasonable compared to last years actual performance
- How accurate have previous forecasts been
Moving on, we start to ask things like –
- What does the order book look like (pipeline business)
- Do you have a good spread of suppliers and buyers
- Do the forecasts include or exclude VAT (many, many, get this wrong)
- What research have you done
- Is there a bad debt allowance
- Are you open to foreign exchange movements
- Is the business seasonal
- Does something else need to happen for the forecasts to be met (new equipment, new customer etc)
This is just a short example of things we would ask you to consider. If your accountant produces your accounts and forecasts then ask them the same questions. A good accountant will have asked these type of question already.
There is much more we ask and query, we never do this to criticise or doubt you, it is about ensuring that any future issue is brought out early and can be mitigated, that any cash need is addressed early, and that your business performs.
If you have any comments about this blog article please add them in the box below, contact us via the website, or call us on 01293 541333.
Going Local
Join The Business Loan Revolution!
Deal With Concerns About Loan Repayments Now
The Mexican Fisherman’s Story