Using Dashboard Reports to Keep Your Loans on Track
July 10, 2017
Typically, bankers must wade through detailed financial statements and footnotes to get a sense of a borrower’s financial status at a given moment. But especially when a company is floundering or in between reporting periods, it’s helpful to have a quick report that simplifies this information into an easy-to-read summary. A dashboard report provides the essentials to help you take the necessary steps to shore up or salvage a loan.
What does it do?
Similar to a car dashboard or control panel, a dashboard report provides managers, investors and bankers with timely, relevant input to make quick but informed decisions. Everything in a dashboard report can typically be found elsewhere in the company’s financial reporting systems, just in a less user-friendly format. Rather than report new information, this real-time snapshot captures the most critical data, based on the nature of the business and its goals.
Your borrowers may have used dashboard reports for internal purposes since the 1990s, when they originally gained popularity. Now these reports may be accessible to managers across an organization via the company’s internal website or weekly email blasts. So, why shouldn’t borrowers periodically share this information with you, especially if you have specific concerns about the company’s viability?
For example, a senior banker agreed to renegotiate the terms of a distressed borrower’s debt only if the company sent weekly dashboard reports that shared various sales and productivity metrics. If the borrower stopped sending weekly updates or the borrower’s performance suddenly failed to meet its loan covenants, the banker reserved the right to call the loan.
Some companies are uncomfortable sharing their dashboard reports on a weekly basis or giving bankers access to internal websites. Instead, they might send bankers quarterly updates or include a dashboard report as an exhibit to their annual financial statements.
How can you modify it?
Internal dashboard reports provide insight into what’s relevant in the eyes of management. But bankers may have different prerogatives that require a modified version of a borrower’s dashboard report.
When deciding which information is important to target, start with your loan covenants, but also conduct your own risk assessment. What’s relevant varies depending on the industry, economic conditions, sources of collateral and business operations. Most dashboard reports include such ratios as: 1) gross margin [(revenues – cost of sales) / revenues], 2) current ratio (current assets / current liabilities), and 3) interest coverage ratio (earnings before interest and taxes / interest expense).
From here, bankers may select company- or industry-specific performance metrics. For example, a warehouse might report daily shipments or inventory turnover, not just total asset turnover. A struggling hotel might provide a schedule of net operating income, average room rates and vacancy rates compared to the previous year. Or a start-up law firm might report each partner’s billings and realization rates — that is, how much is collected compared to how much could be billed.
The purpose of dashboard reporting is to quickly identify trends that require corrective actions. This transparency saves bankers time and effort in benchmarking performance.
Just a tool in the arsenal
When conducting due diligence, there are no shortcuts. Having access to periodic dashboard reports can help you keep problematic loans on track and avoid potential pitfalls. But nothing can replace yearly full and comprehensive financial statements from your borrowers.
For more information on Smith and Howard’s commercial banking services, please contact Sean Spitzer at 404-874-6244.
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