A central chapter in the business plan is to create a financial plan to guide you and show investors. This shows the company’s development in figures and thus indicates whether your project is worthwhile. You start the financial plan by determining the start-up costs and the expenses for investments. For capital requirements, the plan is followed by the profit and loss plan and the liquidity statement.
Create the financial plan: what you need to know
The financial plan is at the heart of any business plan. The business plan’s financial plan combines all the estimates and forecasts that you make in the previous chapters (e.g. on the marketing budget) .
When you create the financial plan, the best step-by-step step step is to:
- Calculate Start-up Costs & Investments
- Make sales planning
- Determining the running costs (incl. entrepreneur’s wage)
- Determining the capital requirements for the foundation
- Ensuring the financing of capital needs
1. Issues at the beginning: Start-up costs & investments
Before you start your business, you must first invest money in your project. In particular, the start-up costs and investments are relevant for your financial plan. Start-up costs are expenses that are usually incurred before or during the foundation. The investments, on the other hand, are usually made immediately after the actual foundation.
2. Calculate turnover:
How much will you sell? Together with the price, the quantity then results in your sales forecast, which is the starting point in the financial planning for the profit and loss account.
3. Expenditure after the foundation: Ongoing costs
Most of the time, you spend more money than you earn in the first few months. You must take this important factor into account in the financial plan and, in particular, in the calculation of capital requirements. Also make sure that you may have private expenses and the entrepreneur’s wage – depending on the legal form – during the start-up and start-up phase do not forget. For greater clarity, you should also turn the running costs into fixed and variable costs to divide. You also need to continuously monitor your company’s liquidity, as liquidity bottlenecks could cause early exit. In this section, you will also be concerned with the Determination of the Break Even Point, which allows you to calculate when your company is self-bearing. This key figure is particularly relevant for investors.
4. Identifying capital requirements in the financial plan
Once you have determined the costs to be financed in your financial plan, you can calculate the total capital requirement. Experience shows that founders are often too optimistic about capital requirements. Therefore, we advise you to include a buffer in addition to the calculated capital requirement. Too little capital requirement usually leads to a liquidity bottleneck, which often leads to failure.
5. Financing capital needs in the financial plan.
If you have set the capital requirement including buffers in your financial plan, you need to think about how you want to finance this amount. Own funds, additional equity, e.g. through a business angel, venture capital fund or other investors and/or a number of debt financing instruments (loans, commodity loans, etc.) are forms of financing that could be relevant. The question of the optimal ratio between equity and debt is also an important question that you should answer in the financial plan in this section.
What is included in the financial plan?
By following the procedure described above, you will work step-by-step to work out the most important components for the financial plan. In any case, the following elements should include a complete financial plan:
- Overview of the initial costs of the foundation: how much money is spent on the foundation?
- Investment overview: what is money invested for?
- Plan Profit and Loss Account: from when will profits be made?
- Liquidity plan: are there any liquidity bottlenecks?
- Profitability calculation: is your project worth it?
In particular, banks may also require a plan balance sheet in the financial plan, which you would have to prepare accordingly.
There are different opinions in the market regarding the planning time. We believe that a three-year financial plan is sufficient, as the estimates for each additional year become inaccurate and thus, if at all, provide little added value.
The goal is …
… that you present a solid financial plan in your business plan. Based on the start-up costs and the expenses for the necessary investments, you can determine the capital requirements for the actual start-up in the financial plan.
In addition, the operating activity of the first few months is usually financed, as you will not normally earn enough to cover the costs directly at the beginning. Possible liquidity bottlenecks that you discover through the financial plan must also be financed. Last but not least, we advise you to include a buffer in your financial plan so that you are well prepared for unforeseen events.
If you have determined the individual entries, you can calculate the total capital requirement. This calculation is followed by the question of how you want to finance the capital requirement. The financial plan also provides information on this question.
The financial plan is not only extremely relevant for potential investors and/or banks, but also shows you how profitable your project is likely to be. If you find that you cannot achieve the desired success with your start-up project, then you should either revise the concept or cancel it and find a new idea if necessary.