Financial forecasting is essential for funding
In order to inspire confidence you need to put yourself in your lender’s shoes. So look at your business, in particular the cash flow forecast that you’ll be producing for your lender as if you were a lender, and think about what your lender wants to see.
So what they want to see is that you can repay the debt and the interest on that debt as well. In which case you need to make sure you’ve got really secure, robust cash flows being forecast for the future. So that means testing your cash flow forecast. So think about different scenarios. Think about the worst case. Think about the best case. Think about what might happen if you have a one-off disaster. That is if you lose a big customer, what will happen to your cash flows, the bottom line? So test it because that’s what your lender is going to do before they make a decision.
They also will be looking at a couple of other things. They’ll be looking to see if you’ve got a track record and how attractive you are as a business and if you’re going to be able to repay. They’re probably also going to think about the growth rates that you’ve put into your forecast. So it’s worth remembering that for most businesses they can’t grow faster than the economy unless they’re in a very innovative dynamic sector and taking a lot of market share from other businesses. So good for you to think about that growth forecast. At the moment economic growth in the UK is about one to two per cent, so be realistic about the growth forecast that you’re putting into your forecast.
The main thing though is to test your cash flow forecast. So see how sensitive your bottom line cash is to different scenarios.