Once your business is up and running, you really need to be organised if you want to become profitable. This means having systems in place that you can manage easily and effectively. A system is just a set way of doing things, so that every demand that is thrown at you can be 'channeled' in a certain direction and dealt with in a planned way.
Proper systems will help you:
- Keep track of what your business is doing;
- Keep calm about what needs to be done;
- Monitor how well you are getting things done; and
- Improve your ability to do things right the first time
You also need proper systems to keep your business legal - especially if you employ people. (Refer to Factsheets)
This section of the website looks at the different parts of your business where you need systems, and suggests ways of doing things that will save you time and stress.
Get Your Operation Running Smoothly
In order to get the operations of your business running with zero or minimal hiccups, there are a number of factors that you will need to consider and ensure that they are in place, you will:
- require a proper Business Financing Plan, which you would have drawn up from the various options provided below
- need to have a comprehensive presentation or plan for potential bankers that will be financing your business
- require a good understanding of fraud and its prevention. This can be obtained from the South African Fraud Prevention Service website, www.safps.org.za
- to be clued up with the services of the Independent Regulatory Board for Auditors in terms of preventing any misconduct by auditors of your business
- need to understand the bank services and the terms with which they render you services. The Bank Monitor would provide you with such knowledge and guidance – www.bankmonitor.co.za
- require a good understanding of business financial management. The website, www.businessowner.co.za would be a good source for such knowhow.
Obtaining loans from banks
This part of Seda Business Start focuses on bank finance and seeks to guide you in terms of putting together a successful pitch to the bank that will make your loan application a success.
The 3 key areas that we will focus on are:
- Bank requirements for SMEs
- Reasons why banks refuse loans
- Checklist for a presentation to bankers
Bank Requirements for SMEs
- Banks look for strong evidence of viability going forward. This includes:
- sound business plan
- strong projected cash flow
- the entrepreneur's understanding of the business
- skills to run and manage the business
- Applicants making a contribution in the form of cash or assets - thus showing a willingness to take risk - stand a greater chance of obtaining debt finance
- If the business has business plans drawn up for them by a consultant with little input from themselves, they need to make sure that they can answer any question the bank may ask of them regarding the business plan. In other words, the entrepreneur must have a complete grasp of what is in the business plan.
- Banks scrutinize the following:
- Cashflow and balance sheet to get an idea of effectiveness of financial management
- Management's capability to run the business
- The collateral offered. Collateral is based on risk and provides the bank with security if the loan is not repaid
- Business margins which indicate the ability to repay the loan
Reasons Why Banks Refuse Loans
- Applicants may not have the competency required to ensure viability
- A perception that start-up businesses are risky
- Inability by emerging businesspeople to offer collateral
- Entrepreneurs may invest in business plans which are not bankable because:
- lack of feasibility or prescreening
- poor quality business plans which are often drawn up by consultants with little input from the client
- unsuitable margins
- Insufficient security
- lack of owner commitment
- character or suitability of the owner
- purpose of the loan not being justified
- inadequate information in the business plan
- difficulty in determining the risk involved.
The above information was condensed from an article that appeared in the Engineering News, May 14-20 2004, p18.
Checklist for a presentation to bankers
KPMG is often requested either to assist clients in preparing a proposal for bank finance or to advise clients on the information likely to be required. This checklist serves as an aide-memoire of the information which a bank is likely to require from the applicant and will provide a logical basis for structuring a presentation.
- The reason why funds are required;
- How much and what sort of finance is required.
- When the business was established;
- How the business has evolved;
- Main factors contributing to development.
- Principal shareholders and their relationship;
- Any unusual restrictions in the articles (e.g. On borrowing powers or transfer of shares).
- Structure and organisation;
- Age, qualifications, experience, skills of directors, senior management and other key employees;
- Arrangements for management succession (e.g. in the case of absence, sickness, departure or retirement of key personnel).
- Nature and description of products (if new or technology based a separate technical appraisal may be needed);
- Description of market and estimated demand both short and long term;
- Market research data (eg. From trade associations, market research publications);
- Competitors, their likely strengths, weaknesses and future strategies;
- Competitive advantages for products of business (eg. Innovative design, quality, pricing, uniqueness).
- Description of internal accounting systems and nature and regularity of management reporting routines;
- Outline of systems of budgetary control
- Confirmation that acceptable accounting policies are used on a consistent basis.
- Summarised financial information for last 3 years (covering profit and loss, cash flow statement);
- Summarised balance sheet at latest balance sheet date.
- Current status of negotiations with Receiver of Revenue on agreement of tax liabilities;
- Any unusual features or matters in dispute.
- Up to date profit figures from management accounts;
- Up to date liquidity figures (ie. Debtors, creditors, stock and bank).
- Any significant contingent liabilities or outstanding litigation;
- Details of insurance cover (including any keyman insurance).
- Projections of future sales and profitability;
- Current order position;
- Major commercial assumptions and sensitivity of projections to variances from plan.
- Description of any new projects or products;
- Impact of new project on profit projections;
- Contingencies (eg. To cover setbacks such as supply problems).
- Forecasts of likely cash flows (ensuring that all relevant items are included, for example, leave pay, corporate taxation, bank interest, dividends, etc);
- Major commercial assumptions and sensitivities.
- Details of existing borrowings (showing lender, terms and amount);
- Further borrowings required to finance new project;
- Required repayment terms and effect on cash flows;
- Contingency provisions (ie. Consider the worst possible position)
- What assets of the business are available for security;
- Financial standing of directors and availability of personal security (eg. Life assurance, property).
- Proposed monitoring arrangements and nature and regularity of financial information to be presented to lender;
- Whether periodic financial information is to be prepared and vetted by independent accountants (e.g. The auditors)