Projections

If there is a recurring theme in these posts (Capacity, Anomalies) it is that credit analysis requires you to ask more questions! Never is that more important than with regards to projections. If your credit decision depends on projected profitability, you need to understand the foundation of the projections. The credit decision maker needs to have a clear picture of how projections will be met and if they agree that the projections are attainable based on the information provided. We start with assumptions, but many analysts stop there. A borrower predicts they’ll see 100 customers a day with an average ticket price of “X” which results in a total revenue of “Y”. Great! Now I want to know the basis of how you’re going to get 100 customers – Foot traffic? Marketing? Buying leads? Referrals? A combination of all those things? How are you going to steal market share from your competitors? Experienced borrowers or successful franchisors should be able to provide that support. These are the details needed to make a sound credit decision.

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