Securing Finance for your Business

A business seeking capital can’t afford to underestimate the importance of business financial projections. A business financial projection is simply forecasting your sales and revenue to the lender. This information is important because it is a key indicator to your ability to repay a loan.

 

If you are unsure about financial forecasting and how it relates to your business it is best to hire someone who does know. Most lenders will want to see a three or five year projection. There are 14 different items to include and fully support in your financial projections. With these different items it is best to give a month-by-month breakdown for the first year, a quarterly breakdown for the next two years, and an annual breakdown for the final two years you are projecting.

 

The different items to include in your projections are; sales revenue estimates, administrative costs, production costs, sales costs, capital expenditures, gross margin by product line, sales increase by product line, interest rates on debts, income tax rate, accounts receivable collection plan, accounts payable schedule, inventory turnover, depreciation schedules, and the usefulness or depreciation of assets.

 

The income projection enables the owner/manager to develop a preview of the amount of income generated each month and for the business year, based on industry supportable predictions of monthly levels of sales, costs, and expenses. When determining the total net sales you will be finding out how many units of products and services you expect to sell at the prices you are projecting. Make sure to think of what returns, allowances, and markdowns can be expected. The sales costs needs to be calculated for all products and services used. Ensure that when determining the costs of sale that you don’t forget anything such as commission paid to sales representatives, transportation costs, or any direct labor costs.

 

For the gross profit you would subtract the total cost of sale from the total net sales. To get your gross profit margin you will divide the gross profits from the total net sales. This will be expressed as a percentage of total sales or revenues.

 

When formulating your business financial projections there are five items that will ruin the accuracy of your projections, and damage your chances of being approved for business financing. The first one is wishful thinking or being over-optimistic about your sales potential. Ask yourself: “Is it possible to achieve the sales levels you’re forecasting?”. A good example is that a sales team can only visit a certain number of customers each week or a factory can only manufacture a given amount of products on each shift.

 

Make sure to keep your projections realistic and even more important to be based on supportable evidence. It is imperative to also make sure that your sales assumptions are linked directly to your sales forecast or your information will contradict itself. Most lenders are “by the numbers”, so if your numbers don’t add up, you will get declined. A good example of this is to say that you expect increased sales in a market that is declining. That just does not add up.

 

Another thing not to do when projecting your business finances is to spend a lot of time refining the forecast. Try to avoid tinkering with the target numbers once they are set. Many business owners neglect to ask the opinions of the sales people who know the buyer’s intentions about what they think the projected sales should be. It is important to make sure your sales team agrees on any sales targets that will be set. One other fatal mistake made by business owners when working on financial projections is not getting feedback on the projections from an accountant.

 

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Managing Workforce Absences

That absence management is a key component of workforce management does not really need an explicit mention. However, planned and unplanned absence is a universal fact of work and many organizations might take it as something that cannot be avoided.

There are ways to minimize both absence and its impact. First, we need to look the factors that cause absence, particularly unplanned absence that is more disruptive to work.

Reasons for Absence

• SHORT-TERM SICKNESS: Short-term sickness is a major contributor to unplanned absence. An employee might call in sick, or produce some kind of certificate to prove the sickness.
• LONG-TERM SICKNESS: This kind of absence is usually covered by a certificate.
• UNAUTHORIZED ABSENCE OR PERSISTENT LATECOMING: The employee might just absent himself or herself without any excuse, or might be a habitual latecomer.
• AUTHORIZED ABSENCE: Employees are entitled to different kinds of leave under the provisions of employment laws. These include annual vacations, maternity (and paternity) leave, educational leave, and so on. These kinds of absence can be scheduled and alternative work arrangements can be made through advance planning,

 

Measuring Absence and its Cost

Many organizations do not take the trouble to find out the cost of employee absence, the reasons for the absence and ways of reducing its impact. With proper focus, absence is controllable to some extent, and the resultant benefits can be significant.

By accumulating absent hours (including late hours) and comparing it to total available hours during the period, we can calculate the percentage of time lost owing to absence. By comparing the percentage for different periods, the trend of absence can be monitored.

By department and section wise monitoring of the trend, it might even be possible to identify some of the reasons underlying high absenteeism. For example, poor working conditions or a bad manager or supervisor might be aggravating the problem in a department or section. Absence can also be measured by individual workers. The number and length of absences of each employee during a 52-week period is noted. Problem employees can be identified and the reasons underlying their absence can be investigated.

Policies and Actions for Absence Management

Surveys have revealed that sickness is a major factor for absence. The studies also indicate that stress-related absence is increasing compared to earlier periods. Absence management starts with clear policies for allowing employees to take time off due to sickness. The policies should meet the minimum requirements under the law, and can be more liberal to attract better employees.

The policies must be communicated clearly to employees. In particular, employees must be fully aware of the procedures for availing sick leave, such as whom to notify, when a doctor's certificate or examination by company doctor is required and also any return-to-work interview requirements.

Implement systems to measure absence by departments/sections and by employee. Seeking the help of occupational health professionals to reduce the incidence sickness and stress can help reduce incidence of occupational health and injury problems. Unacceptably high and persistent levels of absence need to be handled through disciplinary procedures.

Moving Forward

Absence management is an important component of workforce management. Absences can occur owing to different factors. Managing absences start with the organization measuring the levels of absence and identifying the reasons for it. Once a clear picture is available, organizations would find it easier to tackle unacceptably high levels of absence. Studies indicate that sickness and stress are major contributory factors to absence. These are unplanned absences and cause more disruption.


If you'd like to know how we can assist you with your workforce planning, please visit our website www.leadershipmanagementsolutions.com.au