Time to conduct a credit analysis exercise to get the company financial statements back into shape.
Here are seven quick questions one needs to answer to assess an SME's credit worthiness.
Management
Do your business leaders have the talent, experience, character, leadership, and knowledge of the business to succeed? If not, what should be done to close those gaps?
Are the right people in the right jobs? Should people be repositioned to optimize fit and overall performance? Should you make strategic hires to improve your talent mix in critical functions across the firm?
Business
- What is the overall health and landscape of your industry?
- Who are the primary and secondary competitors? How is their health?
- What does the SWOT analysis reveal for your industry and competitors?
Financials
- How healthy are your balance sheet and income statements? (Compare to previous financials over 1, 3, and 5 year periods.)
- What are your pro-forma projections? (1, 3; 5 yrs)
- What significant trends do you observe?
- What should you be doing based on the trends you have identified?
Use of funds
- Why do you need funding?
- How will the funds be used - 90 days, 1, 3, 5 yrs?
- (The key here is to describe in detail with specific usage, timing, and activities.)
Sources of Repayment
- What are your firm’s primary, secondary, and tertiary income streams?
- How reliable or likely are those sources going forward? Most importantly, are those revenues diversified and recurring?
Customers and Suppliers
- What are the composition and attribution metrics? Most importantly, are there any concentration risks? If so, what can be done to mitigate them?
- How healthy are they?
- What are the demographics driving both groups?
- Where are they in their client or product life-cycles?
- Where are your suppliers in your products and services value chain?
- Ask the same questions listed for Customer and Supplier.
- What are the consumer demand, utilization metrics, and trends for your existing offerings?
- What new products and services are in your pipeline? How do you envision those new products and services impacting your financials (balance sheet, income statement, and statement of cash flows) and business strategies going forward?
- What are your competitors offering? How does that impact your business?
This cursory assessment will get you started.
Sum2's clients use Credit|Redi to rate company credit worthiness and conduct business analysis to optimize financial performance and create business plans that are sure to win the confidence of lenders and capital providers.
Credit|Redi used by effective SME managers to improve profitability, credit worthiness and grow the confidence of lenders and shareholders.
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risk; sme, credit risk, lending, private equity, financial health, risk assessment, credit repair, business planning and analysis
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