A financial analysis will closely examine several key elements of your business when assessing the need for help from a bridging loan company. With everything from balances to efficiency to liquidity, a financial analyst has a lot of figures to juggle as they attempt to paint an accurate portrait of your business.
If you’re hoping to make a major decision regarding your business, be it a new property investment, staff expansion or otherwise, a financial analysis is an important part of the planning process. Financial analyses examine past and present financial data to create a forecast for future performance. This allows you to budget accordingly for your upcoming plans. But what specifically does a financial analysis look at? Continue reading to find out.
Financial statements
In business, the numbers often tell the story. Analysts pour through your financial records in search of key areas of consistency (or inconsistency). By comparing past records to current ones, financial analysts can generate two primary forms of analysis: financial forecasting and financial modelling.
What is financial forecasting?
Forecasts illustrate how a business’ costs and income will shift in the future, typically over a period ranging from six months to five years. Financial analysts create these forecasts by looking at balance sheets, which compare assets and liabilities to outline the financial resources available to the business, as well as income and cash flow documents.
What is financial modelling
Modelling is a more advanced from of forecasting, in which analysts can determine a cash flow budget for new business investments based on past and present performance and combining it with preliminary and ongoing costs of the investment project in question.
What are financial analysts looking for?
When assessing the overall financial health of your business, analysts look at four crucial factors.
1. Leverage
Leverage is how much of your business’ capital has been contributed by investors as opposed to creditors. In other words, do the people who have put money into your business hope to earn their money back through profit sharing, or through interest on your repayments? The former is an investor, the latter a creditor. Your business isn’t in “debt” to investors, which means that fewer people have leverage over your business.
2. Liquidity
A business’ ability to pay its existing expenses with its current profit is its liquidity. Businesses with rigid month-to-month income may have liquidity problems if their expenses are fluctuating or unpredictable.
3. Profitability
Profitability is basically your return on investment. How much are you making for what you’re putting in? The money generated from the expenses of the business is a key indicator of the business’ performance.
4. Efficiency
Like profitability, the efficiency of your company is how much product or service you can generate based on your expenses.
An analysis for a better business future
Financial analyses are great for assessing the propriety of commercial and industrial loans. They can also highlight bridging periods in the future of your business when a bridge loan may be necessary. That’s where CFS Bridge Finance steps in. Providing bespoke financial solutions for short-term business needs, CFS Bridge Finance is the right choice when bank lending proves too intransigent to meet your needs. Contact CFS Bridge Finance today to learn more about how bridging finance can benefit your business.
