A business plan essentially lays out the organization's long-term, medium-term, and short-term strategies for achieving its stated strategic goals. It gives management emphasis and direction for accomplishing these goals. Future finance needs for an organization will primarily be determined by its business plan, especially by the type of development strategy that management intends to implement, such as organic expansion in existing markets or mergers and acquisitions-driven growth.
To ascertain the potential finance needs and capital structure choices, it will be essential to have clarity on what a firm hopes to accomplish over a specific time period.
An advisor on debt may help the firm with its business strategy and point out the important areas and likely factors that a potential finance provider would pay attention to. A borrower might enter a process more prepared by being aware of how a possible finance source would see the company. These insights also offer advice on the type of debt structure a business should aim to implement and the anticipated effects such debt strategies will have on shareholders.
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A crucial part of the business plan that needs to be prepared carefully is the company financial model. A financial model should demonstrate, in detail, the projections of financial performance for the business. A financial model should comprise a completely integrated Income Statement, Cash Flow Statement, and Balance Sheet and correspond to the length of the strategic plan (at a minimum, estimates for 5 years should be included). There should be a clear summary of the model's underlying assumptions, and the model should be flexible enough to provide scenario and sensitivity analysis.
At best, the model should be prepared on a monthly or quarterly basis in order to comply with the creditors’ requirements. However, companies operating in industry that are heavily influenced by seasonality, commodity price movements, and capital volatility should definitely forecast on a monthly basis for a more precise analysis of such fluctuations.
A debt advisor will offer advice on the crucial components of the financial model that lenders will pay attention to during the debt raising process. While developing a solid operating financial model might take some time, it is an investment that is important and will support a successful debt raising process.
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A corporation has to think about what kinds of finance arrangements and facilities will support its risk tolerance and strategic goals. If options analysis were not prepared properly, it might lead to failure in raising the required debt capital, or unsuitable structures and debt facilities are secured.
The Information Memorandum (IM) is prepared to serve as a means of sharing information to prospective creditors. Preparing a detailed, clear, and precise IM is vital to secure the optimal debt facilities as this document will serve as the foundation for a competitive process among chosen potential funders, handled by a debt adviser.
Some essential aspects should be included in IM are:
The due diligence process will be focused by the prospective funder, especially if there has been no prior relationship between the lender and the borrower. The main purpose of doing due diligence is to ensure that the information provided in the IM or other materials are free from material variations.
Usually, the debt provider will assess financial and legal due diligence of the companies. Depending on the type of business and its operating industry, there can be further diligence required namely commercial or technical due diligence.
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