A Guide to SME Financing by David Munro (auth.)

By David Munro (auth.)

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The Cash Budget page, when completed, will determine the applicant’s ability to meet the repayment schedule while maintaining a pre-determined Cash balance in his account. However, in the interest of completeness, we are including instructions on how to project financial statements in the Guide. 1. 1 XYZ Co. Projected Income Statement, 12/31/20x1 XYZ Co.  = ,. CoGS =  Sales = , Operating Expenses are constant at , 5 Key Ratios The procedures proposed in this Guide involve usage of only the following ratios: a leverage ratio (Total Liabilities/ Capital Funds) and computation and projection of Accounts Receivable, Inventory, and Accounts Payable values using these computations.

O/E ?  Inventory It is possible that the appraiser can value Inventory at the same time he appraises Fixed Assets. If not, the loan officer can make an appraisal of Inventory during the one site visit required. Another alternative: Once the Sales figure is extracted from account turnover analysis, the computation Sales/360 will provide Daily Sales. The proprietor can advise as to how many days’ sales he keeps in Inventory, a concept with which he should be familiar. Most SMEs are very simple businesses, and do not maintain large inventories.

Of course, 12 months of account history is very much preferable to six, but six months should allow bankers and the enterprise’s proprietor to extrapolate and posit seasonal sales figures upon which permissible borrowing levels may be based. However, in cases where revolving credit facilities are extended, 12 months of bank statements should be required (See Chapter 5). The ending bank statement balance will be the Cash figure on the balance sheet.  Accounts Receivable Most small businesses’ terms of sale are cash only.

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