Special Feature
By the book Unravelling the mysteries of the balance sheet Norman Chambers Managing Director NACFB
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hen I sit down and think about what to write for each issue of Commercial Broker, I often remind myself that some of the nuanced topics I deal with on a day-to-day basis don’t make for the most compelling copy. This article then is for the newcomers, those shorter in the tooth. It seeks to provide a basic but nonetheless helpful framework through which to assess SME clients. Given this magazine is also being distributed at this month’s Commercial Finance Expo I thought perhaps it best to have a bit of fun and seek a tonal shift. So please permit me to don a cape, tip my deerstalker, raise one eyebrow and loosely cosplay as a police detective. And what great mystery must I first seek to solve, I hear you ask? Well, there isn’t one, but let’s see what happens when we apply forensic approaches to the examination of a typical small business balance sheet. Stay with me…
A mystery unravels Enter the humble fictional detective. We all have our favourites, from lovable TV titans Lieutenant Columbo and Jessica Fletcher, to seeing – but never fully observing – through the eyes of Sherlock Holmes;
their adventures and deductive powers never fail to capture the imagination. Perhaps the fictional detectives’ most common trope is their unparalleled ability to enter a room and zero-in on the small clues that help unravel the mystery, focusing on those details that help unpick the nuance from the noise. But a balance sheet needn’t be a mystery to anyone. Indeed, when partnering with small business clients any funding pathfinder worth their salt will seek to cast eyes over it, and it really should form part of the value-added proposition brokers provide. A business’ balance sheet tells the story of the enterprise and whilst it may bluff and sometimes mislead, it seldom lies. When seeking finance, many would-be borrowers tend to focus primarily on their income statement. Rightfully so, as that is the statement that shows their operations. However, the statement they don’t pay much attention to, and sometimes don’t truly understand, is the balance sheet. As finance professionals, we know the best way to view a balance sheet is as a representation both of what your client’s business is owed, and what they owe at a single point in time. And, just like a detective’s approach to a crime, the broker must seek to build as complete a picture as possible of their client’s current financial health. The balance sheet has fingerprints all over it and should provide a crisp snapshot of a fiscal moment.
The plot thickens To help gather all evidence we must first construct our snapshot NACFB | 25
