Realistic/Accurate Business Forecasts | SME’s lack of understanding & Possible Imbalanced Bank Credit

This is one area small business operators find very frustrating, leave alone getting excited to find out what they should earn in the new

year, in advance. Its a shame, banks claiming to be SME specialists fail to understand the root cause of this inherent short coming in majority of their potential customers. In my opinion, problem doesn’t lie in lack of understanding on bankers part, instead, its the “lack of responsibility” attitude which is only looking to attach “any forecast” to the applicant’s file just to satisfy documentary requirements. Few things that needs to be taken care of, either on bankers or SME operators’s part with only 2 benchmarks to focus on- CAPACITY & BUSINESS IN HAND

  • finding the right capacity to delivery each month – in order to pin point a realistic number
  • once capacity is known, see past months actual performance to gauge as to what percentage of capacity, been utilized
  • check for factors responsible in “under capacity” situation
  • set realistic growth, month-wise, giving room to progress steadily in order to reach optimum capacity levels – because if someone is hitting 10 laps, knowing he/she can do 15, there is no way one can achieve 15 overnight – small steps needed to gain good momentum

All above parameters are related to understanding & setting accurate capacity levels, lets look at the other side of the coin – “business in hand”

  •  no matter what our capacity is, bottom line remains that what volume of business does one have at the beginning of each year, so as to insert actual targets
  • being in this situation, one has to work backwards – since business in hand is known upfront, we simply divide it in months – again, 2 sub benchmarks, a) we divide business in hand by our own monthly capacity to establish realistic timeline to finish each job, or b) we get restricted time line from customers, in this situation, one needs to see what’s the best possible volume achievable given our capacity available each month – this will surely save us from last minute embarrassment & penalties in the event we fail to deliver promptly

While we discuss capacity & business, its equally important to establish accurate amount of gap between what SME owners has as his/her equity and what is there to be taken in bank support – this is critical, knowing no one refuses more money coming in – however in the absence of establishing accurate capital requirements, the ability to service bank credit remains a big question mark – it is therefore imperative for bankers & SME operators to realize the need to understand business credentials, in order to ensure sustainable growth, leave alone saving bank from losing out its capital deployed – its being most negative on bankers part to try seek beefy collaterals at the time of sanctioning loans, which in most cases is either business owner’s house or his place of work – meaning, if something goes wrong God forbid, bank would try to extract the last drop that is there to come out clean, lets not discuss what would happen to the business owner & his/her family

Its only being human to realize one’s responsibility to his family, friends, business associates – I don’t think that’s too much to ask dear friends

 

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