Preparing a business case

Before approval will be granted for any form of financial accommodation, a business case needs to be provided. The documentation needed to support the business case should be commensurate with the duration, scale and complexity of the proposal.

In the case of overdrafts, the business case should demonstrate the agency's capacity to manage and repay the facility by documenting:

• the purpose and duration of the funding

• evidence of the borrower's current financial status with details of operating results, cash reserves and existing debt

• summary operating cash flows showing the timing of movements in the overdraft balance in order to demonstrate capacity to manage and repay the facility

• the signed approval of the Chief Financial Officer.

In addition, for small scale asset purchases (relative to agency net asset values or turnover) financed by short term debt (generally less than 5 years), the documentation should include:

• details of the expected outcomes and deliverables that flow from the investment

• a brief description of any uncertainties or contingencies associated with the proposal and the agency's approach to managing these

• evidence that the proposal is consistent with the agency's core activity, regional service plans and agreed development priorities. Where relevant, the documentation should detail how the project aligns with agreed DHS Program plans and wider Government objectives

• income, expenditure and periodic cash flow figures pertaining to those areas of organisation that will benefit through additional revenue or cost savings or will carry the financing cost. Cash flows should clearly indicate the amount of expenditure allocated to servicing and repaying the financial accommodation

• the financial rationale for the proposal in the form of a cost - benefit analysis examining the financial and non-financial benefits and costs to the agency and, if relevant, to the community and government

• the signed approval of the CEO.

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• the purpose of the funding highlighting the expected outcomes and deliverables

• reliable cost and revenue estimates for one off and recurrent elements of the project, with corresponding timeframes

• evidence of the borrower's current financial status with details of operating results, cash reserves and existing debt

• a comprehensive risk analysis including risk management plans, for example an analysis of the impact of fluctuating interest rates, demand variability, or long term construction risk

• a demonstrated link to: the strategic objectives of the agency, DHS and Government, the regional service plan, the related DHS funding program and the agency’s core business activities. For capital assets proposals should demonstrate a link to agreed service plans, development priorities and master plans

• an options analysis, for example comparing long, medium or short term debt alternatives; different combinations of equity, reserves, client contributions and fund raising, or different lease options; and

• a projected, whole of agency, annual cash flow for each year of the life of the financial accommodation, highlighting all recurrent and non-recurrent revenue and expenditure analysed by:

  • funds source, activity and program (see Example A)
  • the receipt and payment types - (see Example B)

  These examples are designed to demonstrate that the entity is capable of servicing its borrowings. Cash flows should clearly indicate the amount of expenditure allocated to servicing and repaying the financial accommodation.

• Detail of the financial rationale for the proposal:
  
  • for short term funding, with a life of five years or less, provide a cost - benefit analysis examining the financial and non-financial benefits and costs to the agency and, if relevant, to the community and government
  • in addition for long term capital funding , provide a discounted cash flow analysis to determine the net present value of the initiative. Long term funding concerns projects with a life of greater than five years, or amounts greater than $4 million, or for complex borrowing involving a mix of debt types.
    
• A proposed repayment strategy describing the associated cash movements (included in the above cash flow statements), and projected balance sheets (see Example C)
  
• the signed approval of the Board and Chief Executive Officer.

The business case should be based on sound evidence, justify the funding required, demonstrate that the recommended option is the best alternative, and confirm that risk management and repayment strategies are appropriate to the scale of the project.

A business case pro forma and explanatory notes are provided as part of these guidelines to guide agencies when developing a business case.

The nature of the business case will vary depending on the type of borrowing and amount of funds required. For complex proposals, more detailed analysis will be required. In some cases, it may be advantageous to engage TCV or an external consultant to assist in the financial modelling, analysis and the overall presentation of the business case. TCV is available to advise and consult with hospitals and community health centres in relation to borrowing strategies and the preparation of business cases.

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