If your business has debt facilities exceeding $1.5 million, your lender is likely reassessing their internal risk rating of your business using your FY2024 financial data. Lenders typically conduct this annual review upon receiving your statutory accounts, usually between October and March.
Failing to provide accountant-prepared financial accounts on time may result in your lender relying solely on management accounts, potentially leading to a downgraded risk rating. This downgrade can affect your borrowing capacity and may lead to higher interest rates.
When engaging with a lender, be prepared to provide the following:
Historical financial statements from the past two to three years.
Australian Taxation Office portal printouts to confirm compliance with tax, superannuation guarantee, and GST obligations.
Details of current aged debtors and creditors
A corporate structure diagram.
Background information on directors, guarantors, or executives, including statements of position, employment history, and industry experience.
Bank statements from at least the last six months, especially if applying for refinancing, to demonstrate proper account conduct.
Details of all financial commitments including loans, overdraft arrangements, and equipment finance.
Information on any properties owned by the business that could serve as security, as well as details of leased premises.
The Value of a Three-Way Forecast
Beyond the standard documentation, lenders highly value a three-way forecast. This comprehensive tool integrates the cash flow forecast with the profit and loss statement and balance sheet, providing a complete picture of your business's future financial position.
Creating a three-way forecast is not solely for satisfying lender requirements; it is also a vital planning instrument for your business. It allows you to compare actual results against projections, assess performance, and adjust strategies accordingly. Lenders often expect such forecasts for complex or operational business borrowings, and having one can significantly enhance your chances of securing financing.
Components of a Three-Way Forecast
A three-way forecast combines:
Profit and Loss Statement: Projects future revenues and expenses to determine profitability.
Balance Sheet: Forecasts assets, liabilities, and equity to provide a snapshot of financial health at a future date.
Cash Flow Statement: Estimates the inflows and outflows of cash, ensuring you can meet financial obligations as they arise.
By integrating these three statements, you gain a comprehensive view of how various factors impact your financial future, enabling more informed decision-making.
Conclusion
Providing a well-prepared three-way forecast demonstrates to lenders that you have a firm grasp of your business's financial trajectory, thereby improving your risk rating. At Accord, we have extensive experience in creating detailed three-way forecasts for a wide range of businesses. For more information, please contact us on 1300 022 267 or visit our My Business page.