Introduction: Rejection starts on paper
How many companies have seen their expansion plans come to a halt at the bank’s door? And how many establishments have had the financing of their project delayed because of an “observation” in an auditor’s report or a weakness in the quality of their financial statements? The truth that many do not want to hear is that your financial statements are your passport to the world of banks, investors and financing institutions.
If your financial statements are not clear, reliable, capable of analysis and prepared in accordance with the relevant accounting standards, access to financing may become more difficult, however strong your idea or your ambition to expand. For the bank does not see your idea as you see it, nor does it know your ambition as you know it.
It sees your numbers.
This is where the importance begins of professionally prepared financial statements, and of an audit that does not stop at a signature but helps to uncover weaknesses, correct accounting treatments and improve the quality of financial information.
First: Why is “the auditor’s signature alone” no longer enough?
Banks and financing institutions today are not looking merely for “an auditor’s signature”. They are looking for a clear financial picture through which they can assess the company’s performance, its risks and its ability to meet its obligations. Three main elements stand out here:
1. Proper compliance with the standards
Applying IFRS properly, and preparing early for the requirements of IFRS 18, which applies to annual periods beginning on or after 1 January 2027, together with the significant changes it entails in the presentation of financial performance and in the classification and presentation of items in the statement of profit or loss.
2. Transparency
The bank wants to know: are the profits really generated by the main business activity? Or did a large part of them come from gains, non-recurring items or other transactions? For the quality of profit is no less important than the size of profit.
3. Governance and accounting policies
Clear and consistent accounting policies, correct classification of items and adequate disclosures help to limit errors, unsupported estimates and practices that may give a misleading picture of performance.
Herein lies the difference between a firm that issues a report as a formality and a professional audit practice that helps the company to understand its numbers and to be better prepared when it faces financiers.
Second: The bank does not finance profits alone… it finances the ability to repay
A company may report large profits in its financial statements, but that does not necessarily mean it is able to repay the financing.
The bank also looks at:
- Cash flows from operating activities.
- The company’s ability to convert profits into cash.
- The size of receivables and how collectible they are.
- The level of indebtedness and liabilities.
- Liquidity and working capital.
- The quality and sustainability of earnings.
- Related party transactions.
- Contingent liabilities and potential risks.
- The quality of disclosures and financial information.
A company can therefore be “profitable” on paper and yet face real cash pressures. Here an important rule emerges: “The bank does not buy book profits; it assesses the company’s ability to generate cash and settle its obligations.” That is why reading the statement of cash flows has become no less important than reading the profit and loss statement.
Third: From distress to the top – the role of professional and strategic audit
Over decades of fieldwork, we have accompanied companies and establishments that were on the verge of distress. In some cases the problem did not always lie in sales or in the operating activity itself, but in the accounting treatment and in the way financial information was presented and disclosed. Once the accounting treatments had been corrected, policies unified, classification and disclosure improved, and items such as discounts and depreciation dealt with in accordance with the standards, the company’s financial picture became clearer and more amenable to analysis.
One important point must be stressed here: A professional audit does not change the numbers to please the bank; it reveals the correct number and lets management know the true state of its financial position before the financier sees it. This may lead to weaknesses being discovered early and remedied, and to an improvement in the quality of the information on which management and financing institutions rely in making their decisions.
A successful audit is not the end of the financial year. It is the beginning of trust.
Fourth: 3 mistakes that may weaken your chances of obtaining financing
1. Failing to account properly for discounts and incentives linked to revenue
Trade discounts and incentives linked to revenue require a proper accounting treatment in accordance with the nature of the contract and the requirements of IFRS 15. Any unsound treatment may lead to an inaccurate presentation of revenue or of the profit margin, and thus give an incorrect picture of the company’s true performance.
2. Failing to recognise depreciation, or to estimate useful life and residual value, properly
Depreciation is not a number that can be ignored because it is “non-cash”. It represents the allocation of the asset’s cost over the periods that benefit from its services. Failing to recognise depreciation correctly, or using unsupported useful lives and residual values, may lead to the overstatement of profits or assets and to showing an unrealistic cost of the activity.
3. Inconsistent classification and accounting policies
When the way items are classified changes from one year to the next without professional justification, comparison between years becomes more difficult. The bank may find itself facing statements from which it cannot easily determine the true trend of performance. Consistency is not merely a matter of form; it is part of the quality of financial information.
Fifth: The 30-minute test before going to the bank
Before you go to the bank to apply for financing, give your financial statements 30 minutes of candid review.
And ask yourself:
- Are my profits really generated by the main business activity?
- Are the cash flows from operating activities commensurate with the reported profits?
- Are the receivables collectible, or does a large part of the profits exist only on paper?
- Are the level of indebtedness, liquidity and working capital under control?
- Are there transactions with related parties that require appropriate presentation or disclosure?
- Are the accounting policies applied in a consistent and comparable manner?
- Do the financial statements and disclosures comply with the relevant accounting standards?
- Is the company ready for the requirements of IFRS 18?
If you cannot answer these questions with confidence, do not let the bank be the first test of your financial statements. Test them internally first.
Sixth: IFRS does not guarantee financing… but it raises the quality of the decision
It is important to clarify a fundamental professional point: Applying IFRS does not mean that the company will automatically obtain financing. The financing decision depends on many factors, including the financial position, cash flows, collateral, the sector, credit history, the bank’s strategy, the risks of the business, and others. But applying IFRS properly raises the quality of the financial information on which the bank relies in assessing the company, its risks and its ability to repay.
In other words: IFRS does not automatically open the door to financing, but it helps to make the picture the financier sees clearer and more reliable.
Seventh: Why should you start preparing now for IFRS 18?
The year 2027 is not just a new year on the calendar. It is an important date for companies that will apply IFRS 18, which introduces new requirements for the presentation of financial performance, including the structure of the statement of profit or loss, the classification of income and expenses into specified categories, and the addition of specified subtotals such as operating profit or loss.
More importantly, management should not wait until the first financial statements are prepared under the new requirements. Real preparation starts now. Because the question is not only: how will you present your profits in 2027? But: are your current systems, policies and data capable of producing the required information?
Conclusion: Invest in your “paper” before your project
Before you think about expanding, and before you go to the bank, ask yourself: Are my financial statements ready for a real audit and for the new standards?
Integrated audit and financial advisory services are no longer a luxury. They are a direct investment in the company’s future, and in its ability to understand its numbers, make its decisions and be prepared when it faces investors and financing institutions. Because the aim is not merely to obtain a “signature” on the statements. The aim is for management to know the financial truth about the company, and for the information presented to the financier to be clear, reliable and capable of analysis.
For the bank does not see your idea as you see it. It sees your numbers. That is why your financial statements are not merely a legal obligation or an annual report. They are the language your company speaks before the bank, the investor and the financing institution.
Get your statements ready before you knock on the door. For the question is no longer: Do you have financial statements? But: Are your financial statements capable of opening the door? Are your financial statements ready for 2027?
Your Financial Statements: Your Passport to the World of Banks and Expansion.