Many businesses’ cashflows are severely impacted by the current lockdown and many may have to apply for funding to enable business continuity. We have put some thoughts together to help you ensure your business plan reflects the current state of your business, but also how the correct funding will impact growth and sustainability.
Tip #1 – Clear Financial History.
Work with your accountant to ensure Management Accounts accurately reflect the recent financial performance of your business. Management Accounts provide a reflection of key performance indicators such as revenue, margins, expenses, and cash flow. The historic performance of your business reflects your ability to successfully manage the financial and admin side of your business. This provides bankers/funders confidence and assurance that you will use funding correctly to grow your business.
Tip # 2 – Type of Funding.
Make sure you apply for the correct type of finance. There are many different funding options available, such as leasing of assets, overdraft to assist with working capital etc. The funding type and impact on cash flow should be aligned.
Tip#3 – Financial Forecast.
There must be a clear link between Management Accounts and cash flow projections. Management Accounts provide the recent financial history of your business. In turn, cash flow projections provide your forecast on the business outlook and financial performance over the next 12-24 months. Cashflow should reflect market impact (like COVID), how funding will be applied and the impact on revenue, margins expenses etc. Funders want to see how their funds will be applied, but also consider the affordability of the business to repay the loan. Did you know that business valuations are often based on future cash flow forecasts? Since these are based on historical data, it is crucial that to include cash flow performance as part of your monthly reporting.
Tip#4 – Provide the facts.
Collect as much data as possible and ensure it is reflected in both your business plan and cash flow projection. An order book, for example, confirming future revenue, will offer factual evidence to your cashflow projection. Independent market research also offers support of how your business is positioned in your specific market segment. Your business plan should then reflect your strategy to successfully compete given your position in the market.
Tip#5 – Why is your business special?
Clearly articulate your value proposition and differentiators over competitors in the market. The stronger your value proposition and uniqueness, the stronger the opportunity to sell your product at a premium that will result in stronger margins.
Tip#6 – Owner commitment.
Demonstrate owner/shareholder contribution to the growth and sustainability of the business. Your financial and personal contribution towards the business should be reflected in the business plan, financials, and cash flow forecast. Funders will rather support a business where the owners have invested their own funds.
Tip#7 – Provide a complete application.
- Business Plan – even an existing business will need a business plan. It should reflect your current position, business strategy and funding details.
- Financial Statements – Signed Off Financial Statements if your business completed a financial year-end
- Management Accounts – Financial history since the last financial statements
- Cashflow Projection – 12 to 24-month projection
- Company Registration & Ownership
- SARS & VAT registrations