Before getting started with your Systematic investment plan, it is advisable to research how big the expected profitability is, how high the expected expenses are and how much financing you think you need to get started. This information forms the financial plan.It’s an indispensable part of any business or investment plan. In this article you can read which parts the financial plan consists of and we give you some tips for drawing up the corresponding budgets.
Create a financial plan: the numerical representation of your investment plan
A financial plan is a numerical representation of your business idea and the future company. In addition, it is crucial if you plan to apply for funding. With a financing plan you convince the bank or other investors to invest money in your company. A well-founded financial plan is therefore an important tool for starting entrepreneurs to gain insight into the success rate of a new business idea and the financial feasibility of the future company. You can draw up this plan yourself, but you can of course also have your business plan drawn up by a financial expert.
The financial planning of the business plan consists of 5 parts
The financial plan, as part of the investment plan, covers 5 financial budgets. The 5 components of the financial plan at a glance:
- Investment budget,
- Financing budget,
- Operating budget,
- Liquidity budget,
- Private budget.
To help you on your way, those below will explain exactly what these parts of the financing plan entail.
The investment budget: essential part of the financing plan
The investment budget provides insight into the amount of start-up capital you need to start your business. These are divided into fixed assets and current assets. By fixed assets we mean all investments in capital goods that last longer than a year, such as company premises, a company car, a computer and machines. Current assets include all business assets with a term of less than one year, such as stocks, debtors and liquid assets. For Systematic investment plan this is important.
After drawing up the investment plan, you have a clear overview of the total amount of money that is required to make a good start with your new company.
Tips for drawing up your investment plan
- Ensure that your investment plan is properly substantiated by adding quotes to your business plan.
- Make an informed choice for each investment by requesting multiple quotes from different companies and suppliers.
- Include an expense in your investment budget for unforeseen expenses.
- Consult a business plan example to gain insight into the various components and the structure of the budget.
The financial budget of your financial plan
The second part of the financial plan is the financing budget. Together with the investment budget, the financing budget forms the starting balance of the company. In the financing budget, you clearly explain how you will finance the required business assets. This can be done with equity or by applying for external financing.
In this part of the financial plan you also calculate the solvency of your company, in other words the ratio of your equity capital to total capital. Investors assess the financing application and the business plan partly on the basis of the solvency ratio.
Tips for preparing your financing plan:
- Make it clear from your business plan how you can continue to pay your debts to third parties in the long term.
- Banks usually require an equity contribution. Make sure that your financial planning is aligned with this, by bringing in equity of at least 20% of the total capital.
- Venture capital or subordinated loans are classified as equity.
- View financial plan example for an overview of the main elements included in the financial budget.
Operating budget: make an operating forecast for the next 3 years
With this you calculate whether your company will make a profit or loss during the first 3 years. You can see it as a translation of your ambitions and objectives into financial figures. The operating forecast as part of the business plan is also considered as a budget of the profit and loss account. By drawing up an operating budget, you can see at a glance how much turnover your company needs to realize to break even, or how much turnover is needed to be profitable.
When drawing up a financial plan at the operating budget level, the first step is to determine the expected revenue. You then subtract your purchasing costs from this to calculate the gross profit. Finally, the business costs are reduced by the taxes still to be paid.
Tips for drawing up your operating budget:
- In the operating plan, all amounts must be shown excluding VAT.
- This measure influences the assessment of a financing application and the associated business plan.
- For employers, actual wage costs are on average 30% higher than gross wages.
- Depreciation on your business assets also falls under business costs.
- In preparation for drawing up the operating budget, it is wise to analyze a number of examples.
The liquidity budget: the basis of your investment plan
With the liquidity budget you provide insight into the expected income and expenditure per month. Based on this, you can, among other things, coordinate your investment plans. In addition, you can also estimate the months in which you need extra cash or can build up financial reserves faster.
The liquidity budget starts with calculating your opening balance on January 1 of the relevant year. Then make an estimate of the expected income and expenditure per month. In the third step, you determine whether there is a surplus or a deficit in specific months. Finally, you adjust the financial budget to this by eliminating any shortfalls.