Let’s first take a look at what a financial plan is and what it should contain. From there, I’ll give you a few tips on how to get it perfectly written.
- Here’s the program:
- What is a financial plan?
- QWhat is the content of a financial plan?
- The Financing Plan
- Some Tips for a Successful Financing Plan
What is a financial plan?
It is first and foremost a tool for analyzing the feasibility and profitability of a business project. If, for example, you have a company or plan to incorporate one and you are looking for investors, they will first want to know if your project is serious and viable. Secondly, a financial plan will be required if you wish to borrow funds from a bank or apply for certain aids, and it may even be a legal obligation depending on the country you live in and the type of company you are setting up. This is the case in France and Belgium, for example.
Be careful not to confuse the financial plan with the business plan used to determine the company’s strategy, of which the financial plan is an integral part.
This document will also be very useful to detect possible weaknesses in your project. If, for example, the result indicates too great an imbalance between costs and sources of financing, it will then be essential to review your business model, reduce expenses, and be less ambitious in order to avoid the risk of bankruptcy.
What is the content of a financial plan?
To be comprehensive, your financial plan should include answers to the following questions:
- What are the set-up costs?
- What are the inputs?
- What are the investments?
- What are the expected results?
The Financing Plan
The financing plan is the key element of a financial plan. It takes the form of a two-column accounting table showing the company’s overall financing needs on the one hand and the expected cash flow to finance them on the other. It, thus, makes it possible to ensure the financial equilibrium of a company and its chances of survival during the first years following its incorporation.
There are two types of plans: the initial financing plan (IFP), which provides information on the company’s situation at the time of its creation, and the provisional financing plan (PFP) or medium-term financing plan (MTFP), which generally extends over 3 or 5 years.
The Initial Financing Plan
The IFP is made up of two columns: the first covers all the financial needs necessary to launch the activity; the second covers the means to finance it on a long-term basis. Here are the details of what should be included:
Column A: Needs
- Intangible fixed assets: these are costs that have no physical substance such as set-up costs (fees related to creation and legal, accounting or tax advice, advertising and communications costs, prospecting, etc.), research and development costs, patents, licenses, software, related to the creation of a website, etc.
- Tangible fixed assets: these are all physical expenses such as buildings, warehouses, offices, land, furniture, vehicles, technical installations, computer equipment, various tools, the coffee machine (important because without it, nothing is possible), etc.
- Financial fixed assets: these include security deposits and guarantees left for a commercial lease, for example.
Column B: Resources
- Capital contributed by the founder(s): This is the money that you and your associates will have personally contributed to the project.
- The capital brought by external investors: Business angels, incubator, crowdfunding, etc.
- Loans: these are loans requested from banks and other credit institutions.
- Grants and subsidies..
The Provisional Financing Plan
This plan is generally spread over 3 years and is the logical continuation of the IFP. Like the IFP, it is divided into two distinct parts and several elements can be added or modified:
Column A: Needs
- Planned future investments.
- Changes in working capital requirements (WCR).
- Distribution of dividends.
Column B: Resources
- New loans and/or their repayments that will reduce resources and thus become needs.
- New capital or current account contributions.
- Cash flow from operations due to the results of the financial years.
Some Tips for a Successful Financing Plan
1If you are not friends with numbers and your project is relatively large, get help. Yes, it may sound strange as a first piece of advice, but believe me, it’s probably the best I can give you.
Don’t underestimate the importance of this document because it will be the basis of your banker’s decision on whether or not to give you the loan and how much money he or she will be willing to give you.
Talk to an experienced accountant, chartered accountant, auditor, business manager, business lawyer, or business start-up consultant.
If you don’t have a budget (it can be expensive in some cases), activate your networks. There must be a friend’s cousin, an uncle’s colleague, or a brother-in-law’s sister who has expertise in this field and who would be willing to help you?
In this case, start by writing your IFP as best you can, then go and see that person (don’t just drop in—make an appointment!). If your project is not gigantic, it should go well.
2Do not arrive with empty pockets. The bank likes shared risk, so unless your banker had an immediate crush on your project, don’t expect him to lend you more than you bring yourself. Even if you are very convincing, without personal input it will be difficult.
If, unfortunately, you’re broke, you can always try, but if, as I’m afraid, you are turned down, you can always read this article.
3Don’t underestimate the funding needs of your project, so assess them as accurately as possible. If you’ve screwed up, it will be much more difficult to apply for a second loan from your bank. It is best to overestimate your expenses and underestimate your income.
4List only those sources that are certain. For example, if you lent $3,000 to your cousin but are still waiting to get your money back, do not add this amount to the “personal contributions” section.
5Make sure that the plan is, at the very least, balanced! The total in the Resources column should equal or exceed the Needs column. If it is not, you have a problem.
Above all, don’t make up numbers that don’t exist. If your banker has the feeling that he’s reading crazy numbers straight out of your magic hat, you may already be looking for another way to finance your project. Without real solutions, you will be putting yourself in danger. So find a way to either reduce your needs or find another source of funding.
This is, in broad outline, what a financing plan is and how to establish it. Now, I would still advise you to check whether there are any particularities specific to your country or region. While doing my research on this subject, I saw some of them between the USA and Canada, in particular. There are nearly 200 countries in the world, so I will not be able to list the differences here unfortunately. But do your research; it’s more prudent. Ask your bank or your accountant, they will be able to give you information.
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