As management accountants, one of the key conversations we have with our customers is around raising finance. In fact, one of the reasons that a company might engage an accountant in the first place, is for assistance with loan and grant applications. With this in mind, we have compiled some top tips below, and ways in which your accountant can help you.
It is generally easier for a business to raise finance when they don’t actually need it. In our role as accountants and business advisors to a variety of small businesses, we have seen a whole range of loan applications for different projects and values.
On the one end of the scale are those where the business has embarked on a project or strategy which has not gone entirely to plan, and the business is running out of money, so they apply for a loan to support dwindling cash and working capital. These loan applications are frequently turned down.
On the other end of the scale are those where the business has not yet embarked on their new project, and doesn’t currently need the loan, but they apply for one, just in case it doesn’t go entirely to plan. These loan applications are usually more successful.
If you are embarking on a new strategy, investment, project, premises etc we recommend that you talk if through with your accountant, before you kick off, and they can advise if a loan application would be a prudent move. Unfortunately, new projects rarely go entirely to plan, and often take a little longer or cost a little more than our first forecasts.
Before you submit your loan application, check with your accountant that you are fully compliant with all your submissions and statutory payments. This is something that the lender will check, and it can get you off to bad start if they see that you are not up to date.
We recommend that your accountant confirms that all your HMRC tax payments are up to date, notably VAT, PAYE/NIC and Corporation Tax. If you have missed any payments or have any payment plans in place, discuss with your accountant how this might impact your loan application and ensure that the relevant repayments are included in your forecasts.
We also advise you to check with your accountant that your statutory filings are fully up to date. The lender will expect to see that your annual accounts and confirmation statement have been filed on time at Companies House.
At JRMA, we are a firm of management accountants to we might be a little biased on this top tip, but we would thoroughly recommend that you prepare management accounts before you apply for a loan. Your statutory accounts that are filed at Companies House fulfil your obligatory requirements, but the lenders will expect to see accounts that are more detailed and more up to date. Monthly management accounts demonstrate a much keener interest by management in the finances which can assist with the loan application.
The loan application will require various forecasts and the forecasts are usually easier to prepare and are more plausible if they are backed up by recent and detailed management accounts. We would also recommend that your accountant provides a commentary with the management accounts, so that it is not just a set of numbers, but that they demonstrate a deeper understanding of what the numbers mean.
Accountant Tip 2 & 3 are good practice for running a business, regardless of whether you are about to apply for finance, but they become more important when you are wanting to borrow.
We recommend that you talk to your accountant to review the core business before deciding to borrow. A business review, from a fresh pair of eyes, can identify other ways that you can raise finance without borrowing. There are a whole range of strategies that you might discuss with your accountant, that could generate more cashflow internally without the need for further borrowing. For example, your accountant might recommend a different pricing strategy, a change in payment policy, an overhead review, a refinancing of existing borrowing.
It is worth ensuring that you have your house in order in the core business and that is working as it should before embarking on new investments that require borrowings.
For more information on this topic read our blog "Cashflow Forecasts - Top 5 Reasons Why You Should Prepare One" here, or to get in touch to see how JRMA can help with raising finance, contact us on 01905 796512 or via our website here.
