Bankers like projections! Are they self righteous?

Business financial projections

I need to make a confession.  In the late 70’s I went to a commercial lending school in Norman, Oklahoma.  We spent two weeks doing case studies and other technical studies on the business of lending to businesses.  Among them was a study on cash flow analysis.  As a CPA I was one of the few who really understood the computations of the changes in the balance sheet and earning effect on cash flow statements.  I was surprised because I soon found out that bankers regularly ask for this information when considering new loans or changes to existing ones.

Later in my first job on the lending line I discovered an RMA form that businesses could use for estimating their cash flow for lines of credit or debt repayments.  The irony was that very few lenders knew how to prepare this form either, which was a simple version of a cash flow statement.  I soon learned the real kicker; many bankers (me too) used to request cash flow statements and projections as a way to get rid of loan requests they didn’t want to deal with!  It was the “bum’s rush”!  If you want to call it self righteous behavior you may; but it is the real world.

Then in the 90’s the PC’s came along and with them spreadsheet capabilities such as lotus and excel made these analyses more possible.  By the late 90’s and forward, bankers began asking for these reports along with business and personal financial statements to analyze loan requests.  Many bankers still could not do them themselves, but demanded them of their customers and prospects.

After leaving the bank I began to work with businesses to secure financing for them.  Projections were always key to getting loans; either for turnarounds, new businesses, or renewals of existing lines of credit.  In this time I learned another thing; many controllers also didn’t know how to do these projections!  The real problem is that they didn’t want to admit it in front of their boss and we ended up wasting some time before we brought in folks who knew how to do them in a proper, understandable format.

Today they are a critical part of any financing request for any business loan request.  When I work with a new client I always ask if they know how to do them, and ask more questions to make sure they really do know how to do them.  If I learn they don’t, I bring in someone who does and can do them quickly and accurately.

Many owners still do not think projections are important because of all the variables of their business operations.  When they do get projections done for them I am very careful to be sure they understand how they were put together as well as the key things that have to happen in order for them to meet their numbers and be successful.  My best clients catch on quickly after having it explained to them by someone “on their side” and the ending result is usually that they get the money they are asking for.

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