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financial plan

What is a financial plan?

In a financial plan you put together all the income and expenses that you plan for a certain period of time. Based on the planning, you can read the development of your company and see whether your project can succeed. The plan is updated at regular intervals and adapted to changes.


The goals of financial planning

You create the financial plan for the first time before starting your business. Then it is part of your business plan. He has different goals:

  • Estimate capital requirements: The financial plan helps you to find out what costs are incurred with the company, what investments you have to make or how much money you need each month to cover your costs. On the one hand, such a liquidity plan benefits the lender, for example the bank. They can optimally assess your project and decide on this basis whether and in what amount to grant you a loan. On the other hand, the financial plan also helps you to think carefully about the business idea and the financial implementation.
  • Long-term planning: A detailed breakdown of costs also helps you plan for the long term. With the help of the financial plan, you can correctly estimate your liquidity and answer the following questions, for example: How solvent is the market? Will my product or service find enough buyers? Is the price for this realistic in the sense of: Are customers willing to pay this and do I make a profit this way?
  • Evaluate goals: By using the liquidity plan to assess your finances, you can see whether your project is profitable. Very important: In this way you can see in good time whether and which bottlenecks are to be expected from a financial point of view. This enables you to develop strategies in advance with which you can take countermeasures at an early stage if necessary.
  • Get support: If you know what expenses you will have to face with the help of the financial plan, you can calculate: How much equity is available to you and how much do you need to be supported by external donors? How much does a possible loan have to be and who can be considered as the lender? In this context, you also determine the means and time frame with which you can repay a loan. That is of particular importance. After all, you want to make sure that you can service the loan you borrowed without getting overdone and ending up in debt or even losing the company again.

A realistic financial plan is often based on experience. If you have been running a company for several years, you can use the figures from previous years to make a realistic assessment. Unfortunately, business start-ups always have to take on a certain planning risk first.


The financial plan and its structure

There are no requirements for having to draw up a budget. In this respect, there is no specific information on what such a plan should look like. In practice, however, a division into the following six areas has proven useful:

  • Preliminary report: The preliminary report contains all the key data about your company. They briefly explain the subject of your project and the areas of responsibility of your company. A list of the earnings situation is also included in the preliminary report. This includes, for example, sales, services provided or expenses. In the preliminary report there is also a list of your capital structure: What investments are you planning and do you have to take out a loan? You also go into your liquidity by assessing your solvency.
  • Plan P&L: You create the income statement (profit and loss account) from your expenses and income. This results in the annual surplus or an annual deficit. You can compare the income statement with the values ​​of the previous year.
  • Budgeted balance sheet: In the budgeted balance sheet, you record changes in the balance sheet situation. Specifically, it is about how you plan investments or loans, for example.
  • Cash flow statement: In this part you record planned investments. You will also explain how you would like to finance this. You can also state the payments planned for the coming year.
  • Investment plan: As the name suggests, the investment plan is about all investments. You list investments that have already been made in detail and compare them with future investments.
  • Position plan: The last part of the financial plan is about your employees. Would you like to hire new employees or fire old ones? How does this specifically affect the financial situation of your company?

Conclusion: The financial plan gives you information about how much money you need for which purpose. Well thought-out planning ensures realistic financing and ensures the long-term existence of your company.

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