Many small businesses survived the Covid-19 pandemic in large part due to the financial assistance received through the PPP program. Now many of those same small businesses are going back to their banks for help, and the banks want to see a plan. These plans must demonstrate to banks that business owners have forward-looking strategies to problems such as operating profitably without the aid of additional PPP money, overcoming disruptions to the supply chain and rethinking sales channels. The type of financial modeling required to put together an effective plan is typically beyond the expertise of both the business owner, and their controllers.

Wasting Your Precious Time (and Money) Thru Trial and Error

Many companies present their balance sheets and income statements to their banks, but don’t realize how these differ from a plan. Balance sheets and income statements provide a picture of a company’s total assets, sales and profitability as of and through a historical point in time but offer no perspective into a company’s financial future. Many business owners are nervous about speculating on future performance, particularly with the uncertainty of today’s supply chain and hiring constraints. The resulting lack of proper information leaves both the client and the bank feeling like they are striking out and wasting precious time – and we all know that ‘time is money!’

Developing Plans Featuring Best- and Worst-Case Scenarios

One local bank recently asked ICS to help a frustrated client prepare a financial plan. We started by asking the business owner questions and listening, uncovering the hidden and real issues. After creating a financial model using the company’s historical financial statements, accounts receivable, payroll, sales projections and more, we were able to help the business owner think through different best- and worst-case business scenarios for the next 6 to 12 months, and options for each scenario.  The plan also showed when the company might be low on cash and more reliant on the bank. The business owner is now armed with valid information and answers for the bank, as well as the peace of mind of having thought through potential solutions to problems that might otherwise keep him up at night and be disruptive to his business.

Using Financial Models to Think About the Future

No one can predict the future, but banks want to know that business owners have thought about the future. Specifically, that they’ve thought about what might go wrong, when they might be low on cash, how low and for how long.

Financial models are the secret tool to help business owners think through potential problems as well as future goals.