In order to demonstrate to your stakeholders that you have too much debt and the wrong capital structure, you’ll need to prepare and provide some key information. Read on to find out what you’ll need, why you need it and how you can prepare it.
If your business is having financial issues and you are considering reaching out to your bank manager or lender to discuss a future course of action, bankers and lenders expect you to have prepared potential solutions and relevant information before you approach them for help.
What will you need?
At minimum, you will be expected to have prepared the following:
- Up-to-date financial statements to demonstrate your current financial position and performance.
- Commentary on how the business is performing, in particular the ability to answer three key pandemic-related questions:
- How has COVID-19 affected your business?
- What have you done to mitigate (or take advantage of) this?
- What does this mean for the future?
- Medium-term forecasts that show what you can afford to pay back and when. The forecast should include a profit and loss (or income statement), balance sheet and cash flow forecast.
- Shorter-term cash flow forecasts that show how long it will be before you need some help.
Why do you need it?
Without this information, it is challenging to demonstrate to any stakeholder what support you need from them, why they should support you and how long that support needs to last.
How do you prepare it?
No matter the size of your business or your finance function, we do not underestimate the difficulty of preparing this information, in particular forecasting in the current circumstances. Since we regularly review models and financial information, we offer our recommendations below:
- Provide explanations for results; don’t simply give people figures without a narrative. Add depth and colour to the reasons for the performance.
- Be clear and concise in how you have been affected by Covid-19.
- Use an existing system or software package to forecast so that you are less likely to have errors. If you’re not sure where to start, contact your accountant or local RSM Restructuring and Recovery team.
- Ensure any key assumptions are clear, linked to either previous performance or explained, and capable of being amended easily.
- Ensure your funding requirement is clear and easily identified.
- Once finalized, review the completed forecast to ensure it takes into account both your business and the environment in which it will be operating during the forecast period.
Read next: Part 2: What to try before you pursue a financial restructuring
