Categorized | news

Small businesses need better forecasts

And we don’t mean its bloody cold and going to rain all week.

In a world of pre-election, pre-maybe-Brexit and IR35 hoo-hah, being a small business owner has never been tougher, in the post-war era. At some point in time, it’s entirely possible that you may require funding. But how to get it? Lending to small businesses and those trying to get projects off the ground has never been tougher. There are more options available these days, such as community lenders like Funding Circle, as well as the regular high street banks, but it’s often true that the process upon which they make business decisions about whether to give you a loan is fundamentally flawed.

Because lenders make their decisions, at least in part, based on the value of the assets your business has. However, look to the start-up world and you’ll see that they do it in completely the opposite way. They lend (more sensibly) based on the future value of your business. Yet today, bank loans involve a forensic look at your historical accounts and barely glance at any forecasts, before you get that yes or no. It’s backwards, right? 

Part of the reason is that as small business owners, we aren’t accountants. And accountants have a tendency to look backwards, not forwards. Basing lending off that historical data only tells a part story and doesn’t tell a lender what your business will look like in, say, 3 or 5 years. What may seem like a big loan now, may, if your vision for your business rings true, amount to just a micro-payment, five years from now. 

Choosing an accountant who can develop a high-quality future forecast for you could, if you find a more open-minded lender, unlock the ability to accelerate your business with the addition of new funding. More modern, progressive accountants who work with a variety of business should be able to provide you with an accurate and insightful forecast into what is to come. And, this can not only be useful for you if you are looking to borrow money, but If you are looking to sell your business, it can give a potential purchaser a view of what they are buying, as well as telling you when your ideal exit point should be, and how much you can afford to ask for your share. 

Funders too, like to see these forecasts. It gives them a faster decision to make, as to whether to lend or not.

While some of the bigger accounting companies can go in completely the opposite way and lend money based on stories bigger than Brexit, finding a good SME accountant with a progressive outlook can help to do something useful for you, with an accurate, forward-looking forecast.

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