Thinking about getting a Business Loan?

You may not think of this when you are considering applying for a business loan, but it can be very beneficial to work closely with your accountant when you do.

Why? That is also the same question your accountant should be asking you. More than likely the response will be because the Bank asked for one, which is fair enough from the Banks perspective.

However the real underlying reason needs to be asked and that maybe several "why's" being asked by the accountant. If you are not being asked for the real "why" by your accountant then they are not really going to do a good job for you.

A quick finance fix may solve an immediate cash flow issue but it is not going to resolve the underlying issue, which can be a good issue or a bad issue. Unless you address what that underlying issue is, it is fairly probable that the business could be asking for more money at a later date. Not a great look if you are financially struggling and doesn't show good financial management or any forward planning.

Lenders will look at how your business is performing, what money comes in and when and what the profit margins are. That's the historical data.

But they also look at the business projections, how the borrowed money is being used, how it will make money for the business and most importantly how it is going to be paid back.

So it's important that your accountant does a 3 way forecast, which includes a Profit and Loss, Cash Flow Statement and a Balance Sheet. And don't be fooled into thinking a Profit and Loss and Cash Flow forecast are the same, because they are not.

I've prepared several business projections that have shown a profit in the Profit and Loss but with some fairly deep "troughs" in the Cash Flow. The Cash Flow will tell you where to expect those troughs, how deep and for how long. With some careful cash management the size, the depth and the length of the trough can be managed but unless you are fore warned you are not going to know until it's either happening or happened. The stuff that real stress is made from.

Accountants work closely with other professional service providers such as Lawyers, Bankers and Mortgage Brokers on a regular basis, because we are all about getting the best outcome.

Many years ago, when I was starting out, a client said to me that the reason for his success had been due to three professional people that he worked closely with and they were his Accountant, his Lender and Lawyer.

I don't think much has changed today, so if you are thinking about a Business Loan talk to your Accountant.

 

Alison Lemon, Director