Building on the ways of financing, we will talk today about developing a solid financial plan. In the financial plan, you outline the expected financial development of your company: where your revenue is going to come from, how much costs you have and how you will secure the company’s liquidity in the long term. The financial plan is an essential part of your business plan and gives banks, lenders and investors an overview of the company’s overall financing and financial risks. Usually, the financial plan is prepared for the first three years. Banks and investors expect the financial plan for the first year to be broken down to a monthly level. For the planning years two and three, a presentation at the annual level is sufficient. The time span of three years is considered a guideline for when the start-up difficulties should be overcome. Investors then expect a return on the capital they have invested. Banks, as lenders, also want to be sure that you can repay your loan installments as agreed. Every financing plan should include the following subplans:

1. Sales plan
2. Cost plan
3. Investment plan
4. Profitability forecast
5. Capital requirement and financing plan
6. Liquidity plan

Sales Plan 🎁

When you create your financial plan, you start with the sales plan. The reliability of these forecasts affects the quality of the entire plan. The basis for the sales plan are sales figures in units or other quantities. These are valued with unit prices. Changes in the sales plan can therefore result from volume effects and price effects.

Cost Plan 💰

In the cost plan, you break down the costs that are regularly incurred during business operations. The amount of these costs depends in part on the scope of the service provided. Therefore, the cost plan also influences the sales plan.

Investment Plan 💼

During the start-up period, expenses are particularly high. The investment plan deals with these one-off investments and also maps follow-up investments that may become necessary, for example, in the event of larger production volumes or higher capacity utilization within the planning period.

Profitability Plan 📈

The profitability plan shows whether you will make a profit with your company in the foreseeable future. In this plan, you compare the expected sales and costs from the previous plans. This shows when your project is likely to be profitable.

Capital Requirement and Financing Plan 🏦

The capital requirements plan shows how much capital you will need to get started. In the financing plan, you break down the sources of this capital. This can be your own financial resources, investments or borrowed capital. In the start-up phase, you will mainly use equity capital, as it is likely to be difficult for most founders to find outside capital providers. Banks place high demands on collateral or guarantees. In addition, borrowing money privately is usually cheaper and easier. As your company matures, however, it becomes increasingly important to ensure an efficient capital structure – in other words, to use a little more outside capital in order to be able to grow. As soon as concrete figures can be presented, financing via outside capital becomes easier and easier; after all, your financiers can also earn money themselves comparatively risk-free with a successful business. However, the financial crisis has shown that too much debt can lead to problems. Thus, especially in crisis situations, it is better not to rely too heavily on lenders who can indirectly exert influence and pressure on the company.

Liquidity Plan 🪙

You control the development of solvency with the liquidity plan. In this respect, the liquidity plan is particularly important, because a lack of liquid funds quickly leads to insolvency. Regular liquidity planning is therefore also recommended for established companies.

When creating your financial plan, a template can help you to take into account all the important details. Nevertheless, developing a resilient financial plan is challenging, because you have to work with a lot of estimated values when planning. Extensive research is necessary to be able to plan realistically. Therefore, be sure to base your financial plan on the results of your market, competitor and SWOT analyses.

Keep in mind that you are creating your financial plan for yourself on the one hand, but also for third parties on the other. Investors and other decision-makers must be able to understand your calculations and assumptions. Therefore, back up estimated figures with additional explanations and research results. For example, determine prices and sales volumes of similar companies for sales planning or obtain quotes for investment planning.

Be careful not to base the financial plan on your desired outcome. Do not assume a desired result in order to determine the required sales figures from it. Instead, base your planning on realistic values.