An appropriate loan structure, Cash flow Forecasts and Budget are among the most important strategies for successful business planning.
In current tough financial conditions, these tools are critical for success and in some cases, even survival.
While considering a business loan application, banks rely on financial achievements of the business over the past three years, the business plan to meet its future obligations budget for the next two years and cash flow forecast.
Cash Flow factors
A cash flow forecast will depict any shortfalls that may occur and the proposed steps to stay out of financial stress. For example, many organisations look for additional cash during months of tax and GST payments.
Bank Loan repayments and other financial commitments are significant components of cash flow forecasts. One should examine the volume of loan repayments and whether the business generates enough cash to meet the obligation.
Periods of stress may warrant negotiation of repayments with the bank, including interest only payment until cash flow improves or some other liabilities are extinguished. Proper planning is imperative to ensure that sufficient funds are available to meet the business targets.
With introduction of new financial reporting norms, banks are very careful with their lending, insisting on up-to-date financial information. Banks are comfortable with companies that maintain updated figures, budget and cash flow forecasts.
The Budget
The Budget is a document or an exercise that encourages a business to look towards a more promising future with a forecast of income and expenses during the following year. Comparison of budgeted and actual performance at regular intervals enables a company to investigate variances and take appropriate action wherever needed. Such an approach helps in making well-informed decisions.
A good Budget will help in meeting your cash commitments.
It is often said, “Cash is the King.”
Your business may have very high profitability, but cash is still its lifeblood. If you do not have enough cash to meet your commitments in time, there is no use of high profitability.
Selling on long credit and not having adequate cash flow can land a business in hardship in meeting its financial obligations. Collection of money from debtors is a challenging job particularly in the current scenario.
I am aware of a number of suppliers and distributors facing such problems.
Cash flow will not only help the business cycle going smoothly but also provide for personal and family expenses of the owner of the enterprise.
Loan Structure
Like any commercial venture, banks are in business to make money. They will structure lending to earn good fees and interest.
Banks sometimes charge higher interest rates on business loans even when the mortgaged property has surplus equity. I have restructured loans for a number of my clients with huge savings accruing to them.
A proper loan structure for your business and personal loans can make much difference. It will help you generate sufficient cash to meet your commitments in time and in achieving your budgets.
Suresh Sharma is Director of Cherry Mortgage Solutions based in Auckland. His personal disclosure statement is available on request.
Phone: 021-827575. Email: cherrymortgage@xtra.co.nz
www.cherrymortgage.co.nz
Disclaimer: The above article should be taken only as a guideline and not as personal advice. Mr Sharma and the management and staff of Indian Newslink absolve themselves of all responsibilities or liabilities in this connection.
