Most demand for financial banks is rejected not because the client is a bad credit risk but because they have approached their banks that are not ready. Forward by communicating the first information first.
Cashflow provides data that shows you understand and can manage your working capital (debtor, creditors, and stock) and that cash in your business is enough to close the bank’s interest (as well as other main costs such as taxes, dividends and replacement capital. “Cash is The king “and even profitable businesses can fail if cash is not managed. Understand your cash movements and you might even need to borrow less.
Outlook presents an estimate that communicates the required amount, return period, risk and return to the bank. Figures must be more sophisticated than sales and profit estimates and ideally show the relationship between profit, your balance sheet and cash flow. Analysis of sensitivity is important to help bank understand when they take non-payment risks. Forecasts must always be based on the most up-to-date actual data.
The market explains your market. Focus 20% of your efforts that explain what has happened and 80% on what you expect happens and why. Don’t worry, this top economist is sometimes wrong too. The point is you need to show the bank you have thought, considered as a possible result and you have a clear action plan.
Mixed and client quality client details with name / industry / region / contract. The strength of your clients and their ability to pay = the strength of your business. Building your business around one client is a high business risk.
Updates give bank management information to date, especially if the annual account is dated. Information must be produced at least every quarter, divided into divisions / regions and including profit, balance sheet and damage to cash flows. Management information must be used to update estimated / budget data and every difference that must be explained.
Need liquidity shows the bank that your business is liquid and can survive. Tell them how quickly you get cash and know your debt schedule, the term credit and what is tied to assets. Think of exceeding the current asset / liability ratio and consider your ideal liquidity position. Remember too much liquidity means assets can produce higher returns elsewhere.
Income knows your financial definition. Are you talking about gross profit, operating profit, net profit or ebitda (profit before interest tax, depreciation and amortization)? All common in business financial analysis. Also make sure you can discuss the season and cycle of your industry.
Competition tells the bank how do you have appeared compared to your competitors? Be prepared to discuss your competitors’ strengths and weaknesses. This gives confidence that you are a proactive management team that truly understands business.
Activities violate your business with activities / divisions and notify the bank whose activities are performing well and which drain cash and why. Explain how the division is complementary or overlapping and strategies for each. Be prepared with estimates if necessary.
Track records except starting, providing at least 3 years account to the bank (5 years ideally if approaching new banks) and the latest management accounts. The bank will need this data for financial analysis trends in ratios and margins. It will also give them trust in the track record of your management.
Equity, debt and balance sheet communicate your risk (equity / directors’ loans) versus the risk of the bank. Know the real strength of your balance sheet by having the current market asset value for hands and details full of debt (including exposure to the balance sheet such as rent and guarantee). Explain at the beginning of what security and not offered.