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Financial Forecasting in Uncertain Times




Back in my college days I must have missed class the day they taught how to accurately project revenue and expenses during a pandemic. Normally a straightforward task, these days the added variables and lack of historical precedence make revising projections difficult at best. I thought it would be useful this week to review the questions lenders are looking to answer when reviewing COVID adjusted projections. The following assumes our client has a capital need that can be met in whole or in part with a venture debt facility (term loan, working capital, CAPEX, etc.)


After our initial consultation to determine client need and a potential fit, our next step is to review financial information to validate fit and determine the appropriate subset of lenders to approach with the opportunity. Basic information is requested - historical and year to date financial information, pitch deck, cap table, and AR/AP aging, and projections for the next 18-24 months (monthly or quarterly) are standard. We will ask if projections are COVID adjusted as all lenders at this point require this information. We and the lenders both understand the level of uncertainty inherent in these projections. To further clarify the impact of the pandemic on forecasts, clients should be prepared to answer the following questions:


Revenue - How is the pandemic impacting revenue YTD and what is the anticipated impact for the remainder of the year?


Expenses - What adjustments have been made to headcount, sales, marketing, inventory, etc.? How have expense reductions affected revenue production (i.e. fewer sales people, etc.)? How has this affected cash burn?


Cash On-hand/Runway - Lenders are focusing heavily on cash balances and runway. 9-12 months or more of runway is the minimum most lenders are looking for when considering structuring a debt facility.


Future Capitalization Plans - Were there plans in place for an equity raise this year? If so, is the process still moving forward or stalled? Who are you targeting to invest? Will current investors lead the round, or are you looking for new investors? What amount is targeted and what is the proposed use of funds?


Growth Drivers for the Company - What factors have historically driven growth? How has the COVID pandemic changed growth (positive or negative)? Will the pandemic change growth drivers for the future (has the company made a strategic pivot in services or customers, etc.)? Will historic growth drivers remain viable post-pandemic, or will they change?


Use of Funds from Debt Facility - While bridge loans do exist (and we source them), most lenders want to be sure that most or all of the capital invested goes towards growth as opposed to survival. How will the capital be used to fuel continued growth?


While sourcing capital is certainly more difficult than it was a couple of months ago, venture debt lenders still have a surplus of dry powder and need to put this money to work to earn returns for their LPs. Often, the difference between success and failure is providing the right information. Today’s environment makes this challenging. Providing answers to the above questions will greatly increase the odds of success. We’re here to help. If you’re currently working on revising your projections and/or have a capital need, reach out - we’d be happy to discuss and assist. Stay safe and be well!


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