In working with a client recently, we were discussing their projections for the current year because they are looking to payout some higher interest debt on their balance sheet with less expensive debt that they thought might be available from a bank. As we went through the math it became obvious to them that their projections were not going to be enough to meet the requirements of the bank. As I sat with them going through some of the options, I thought I would share one of the easiest methods a business can use to sharpen up its numbers and make a better presentation to a bank.
1. Create a “Sales by Customer” report that you can probably pull off of your accounting system showing what percentage of your revenue came from which clients.
2. Take your projected revenue and identify which clients will give you the opportunity to earn their business. This might mean that only a certain percentage of your past clients generate new revenue but at least you will be able to articulate the new business you need from new clients to meet your projections.
3. Your Sales by Customer should then be the driver for your Profit/Loss statement (which should then drive your Balance Sheet)
Most business only generate a projected Profit and Loss statement without giving consideration to a projected Balance Sheet or better yet – a “Sales by Customer” projection. If your business has some history you should be able to go through your list of clients and identify the ones that your business will earn revenue from and the gap that remains between your projected revenue and the new business you need to create.
The next step of course is to lay out a specific plan that is based on your “Sales by Customer” projection not your Profit/Loss statement. Financial statements are an after the fact recording device. There are more helpful financial tools that your business should be using in real time to identify problems and opportunities.
“To the man who only has a hammer, everything he encounters begins to look like a nail.” – Abraham Harold Maslow
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