NEED FINANCE FOR YOUR BUSINESS?
If you are looking for a business loan you need to make sure you are prepared. Banks will put your loan application under the microscope and you’ll need to provide current financial statements and possibly a cash flow projection.
Let us examine some of the documentation you might need to support your loan application:
Financial Statements: Your financial statements including your Profit & Loss Statement and Balance Sheet will be scrutinised. It is vital that they are up to date and accurate to ensure a smooth application process.
Profit and Loss Projections: You need to satisfy financiers that you have the capacity to service the loan and make the repayments. Accordingly, your projections need to support the fact that your business is healthy and profitable. Sounds simple but many small business owners find it difficult to predict future sales let alone produce a projected profit and loss statement. Making some assumptions and using some financial modelling software we can produce best and worst case scenarios at a mouse click.
Budget: When preparing a budget start with the fixed costs and business overheads. These are the costs that remain unchanged irrespective of whether you make a sale or not. They include items such as rent, leases, rates, insurances and some administration costs. Insert these figures into a monthly spreadsheet (that is available from our office) then start working on your variable costs. Variable costs fluctuate depending on the level of sales and include supplies and materials, sales commissions and shipping costs. You should be able to predict what will happen to these costs if your sales increase (or decrease) and don’t forget to factor in seasonal trends.
Balance Sheet Projections are useful and can illustrate to lenders that you are managing the business assets and liabilities. As the business manager you need to demonstrate that you are managing key areas including debtors, creditors, cash and stock.
Cashflow Forecasts are different to a projected Profit & Loss and budget because they are based on actual funds flowing in and out of the business. A projected Profit & Loss is based on sales and expenses which obviously don’t instantaneously result in money coming in or going out (e.g. a sale or purchase on credit terms may not settle for several months). The cash flow forecast needs to incorporate the timing of income, costs and overheads as well as movements in debtors, creditors, stock and capital expenditure.