Financial Planning for Companies – 7 Tips for Your Business Plan

Learn how to create a solid financial plan for your company! We share 7 important tips to help you develop a clear and realistic financial strategy. From sales and cost planning to investments and liquidity management, this guide walks you through all the essential steps. Financial planning is not only crucial for investors and lenders, but also provides you as an entrepreneur with valuable guidance. Read on to discover how to set financial goals and establish the foundation for your company’s success.

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Why a solid financial plan is essential for your company’s success

The financial plan is the most important part of your business plan. You create it not only for external parties like lenders, but above all for yourself. It provides you with fundamental guidance for the coming years and shows you where your project will realistically lead. If you want to create financial planning, you must therefore invest time and energy. It is not enough to simply set a few numbers as cornerstones. Instead, you analyze the entire financial side of your venture, and then create a detailed roadmap for yourself.

When do you create a financial plan?

Anyone who wants to create a business financial plan typically does so because they want to build or advance a company. However, thoughtful financial planning is also used in many other places in life. This can already be the case when you want to gain an overview of your income from employment in order to adjust your lifestyle accordingly. In doing so, you compare your income and expenses and calculate what regular costs will fall on you and what your finances will look like after all deductions.

This also requires a certain amount of planning and calculation. If you plan to create financial planning for your company, it is naturally on a larger scale. Alone, the expenses and cost factors are more diverse, complex, and often more difficult to predict. Yet this is exactly why it is so important when it comes to structuring your company. You begin financial planning even before you build your business at all. The purpose is that you must first become aware of the financial side to approach practice strategically. In this way, you ensure that you start with sufficient capital and know exactly which expenses are planned and which costs could exceed your budget.

Finally, you create a financial plan to secure the investment and financing of your project. You convince financiers with a well-thought-out approach and a realistic outlook on what you want to achieve.

What exactly is financial planning?

The business plan and the financial plan are both indispensable components for your company’s success, but they have different tasks and focuses. While the business plan encompasses your company’s comprehensive strategy, the financial plan focuses exclusively on financial aspects. Both are interconnected, but they serve different purposes and offer different perspectives.

Business Plan: The overall strategy for your company

The business plan is the complete picture of your company. It describes your company’s vision, mission, and goals as well as the planned approach to achieve these goals. The business plan contains information on market analyses, target groups, competition, marketing strategies, and distribution channels. You determine which products or services you want to offer, which markets you want to enter, and what resources are needed for this. The business plan is particularly important for convincing investors, sponsors, and other external partners of your concept.

Financial Plan: Your company’s financial roadmap

In contrast, the financial plan is the detailed roadmap for the financial aspects of your company. Here you explain how you will specifically finance your business idea, what income and expenses you expect, and how you will achieve your financial goals. The financial plan includes forecasts for revenue, costs, profit, and liquidity, as well as a detailed presentation of capital requirements and financing options. A well-thought-out financial plan gives you guidance on financial requirements and shows you how to best utilize your resources.

It is important to understand: The business plan sets out the vision and strategy, while the financial plan shows the practical implementation of this strategy from a financial perspective. The financial plan is thus an integral part of the business plan, but it focuses exclusively on the financial questions associated with building and scaling your company.

The Business Plan and Financial Plan working together

A business plan without a financial plan is incomplete, since financing your company is in most cases the decisive success factor. Conversely, a financial plan without a business plan can also be of little use, as it does not provide clear direction and may not take into account the necessary financial resources required to implement the strategy.

Your financial plan supports you in all phases of your company. At the beginning, it helps you determine capital requirements and convince investors. In the growth phase, it shows you whether your income covers your expenses and whether you have sufficient liquidity to continue expanding your company. Even in times of crisis, the financial plan is essential to respond promptly and keep your company stable.

How do you create financial planning?

You can create financial planning by setting up the following sub-plans.

The Revenue Plan — With the revenue plan, you take the first step toward creating your business financial plan. In it, you specify which products or services you want to offer and what prices you will charge for them. It also contains forecasts for the quantities you will achieve.

The Cost Plan — Once you have documented in the revenue plan how you will generate your revenues, it is now time for the cost plan. In it, you summarize what expenses you will incur and thus what financial resources you need for your project.

The Investment Plan — When creating a financial plan, an investment plan is a must-have. As the name suggests, it describes what investments you must make for your business. Especially if you are just starting out, you may be facing larger investments. This is completely normal, but must be included in your calculation – particularly at the beginning, you should ensure that your investment plan is complete and realistic.

The Profitability Plan — In the profitability plan, you bring together your investments, costs, and revenues. From this, you gain first insights into when your company is likely to post its first profits.

Capital Requirements and Financing Plan — By this point, you have gained an overview of what expenses you will incur to start your company and keep it running for the first few months. You need financial resources that most startups do not readily have available. In the capital requirements and financing plan, you therefore determine where you want to get your capital and what financing you will use. You list both your own resources and capital from lenders.

The Liquidity Plan — Liquidity is critical to your company’s solvency and therefore plays an important role when creating financial planning. You maintain an overview of it with the help of the liquidity plan.

What goes into a financial plan?

In short, your financial plan should include all information that you and your lenders need regarding the financial side of your company. Which specific points this includes depends on the nature and content of your business. As a check, you can ask yourself: If you had to explain your finances to a complete stranger without any insight into your company – could they understand them based on your financial planning alone?

In particular, lenders and investors want to know what your business planning looks like for the first three years. Since most startups fail during this phase, it is especially critical. But if you survive it, you have good chances according to an old wisdom in the entrepreneur scene. Many financiers continue to orient themselves to this rule of thumb, which is why you should particularly convince them with regard to this initial time period.

To give yourself and third parties the best possible overview, you should initially list and plan the months individually. This is especially important in the first year, as most changes happen here and your company can develop significantly in just a few months. After the first year, things typically settle down. For this reason, it is sufficient if you orient your planning to full years.

Comprehensive Analyses — Your financial plan should include above all a SWOT analysis that shows the strengths and weaknesses, opportunities and risks of your company. It puts the four individual points in relation to each other and shows what you and your lenders can realistically expect. Beyond that, you should include analyses in your business financial plan about the market you want to establish yourself in, and about the competition you will face there.

Consistent Information — If you want to create a reliable business financial plan, you should ensure that it is internally consistent. Since financial planning consists of several sub-plans, they should all fit together and ideally build on each other. If you already detect contradictions or inaccuracies here, your financial planning is not sound. This also includes making it understandable to outsiders. Once you have created your financial planning, you should initially present it to your friends or family. Do they have questions? Do they understand all aspects? Do they feel that the plan is understandable and internally consistent? Can they follow it and is it even convincing them of your business?

Realistic Information — Your financial plan must not only be internally consistent, but also realistic. This means it must correspond to the facts and does not present numbers, data, or circumstances in an embellished way. You should place particular emphasis on this – if your lenders feel that you were trying to persuade them to invest with an embellished financial plan, they will lose all trust. This may even result in legal consequences for you.

Especially when you have not yet founded and established your company, you naturally cannot estimate all figures accurately. Therefore, it is normal that you work mostly with estimates. But they too should be well-founded. This means you should be prepared for possible follow-up questions and be able to explain how you arrived at the figures. For example, you can request quotes from companies you plan to work with in the future.

“Man is not made great by the destination, but by the journey there.” - Ralph Waldo Emerson

7 Steps to Create Your Financial Plan

We show you in the following seven steps how to create financial planning and convince your lenders.

1. Set planned revenues in the revenue plan

First, you document how many products you will sell within the first twelve months and what revenues you can generate from them. You proceed on a monthly basis so that you can gain a detailed overview of the first year.

Of course, you cannot estimate the exact figures yet, which is why you enter well-founded estimates here. However, they should not be pulled out of thin air, but rather determined based on comprehensible calculations and analyses. A key resource for this is the SWOT analysis, which shows the strengths, weaknesses, opportunities, and risks of your project.

However, it too can only make vague predictions if you want to bring a new product to market. In that case, a competitive analysis cannot or can only conditionally be performed, which means you cannot draw reliable insights from it. If, on the other hand, you want to enter a market that already has some competition, your analysis focuses largely on the question of what unique selling points distinguish you from your competition.

2. Identify expenses in the cost plan

In the cost plan, you list all the ongoing costs that will arise in your company. This includes expenses for personnel, materials, and operating expenses. You should even note any interest, as it can quickly accumulate depending on the amount borrowed and impact your financial planning.

Your personnel costs amount to salaries, pension contributions, social security contributions, travel and Christmas bonuses, and vacation entitlements.

Material costs include not only the materials you directly process into your products. Packaging and similar expenses are also included here. The good news is: the more products you sell, the lower the material costs per product. This means that at the beginning you still need to account for higher expenses in this category, but these will reduce over time. This is exactly why monthly itemization is so important in the initial phase.

If you want to create financial planning, operating expenses take up a significant portion of your cost plan. You note here all expenses that arise in connection with your company. This includes, for example, costs for marketing and licenses, the rent for your office space, electricity, office supplies, and so on.

Your cost plan concludes with your depreciation and interest expenses, as they also drive up costs and therefore must be considered.

“We haven’t really exceeded our budget. The budgeting was just lower than our expenses.” – Keith Davis

3. Record one-time cost items in the investment plan

While you document your ongoing costs in the cost plan, you set up the investment plan for one-time expenses. Especially at the beginning, they accumulate: machines for production, furniture for office space, and similar purchases ideally need to be made only once. However, the expenses usually occur together shortly before the company starts, and they then have the potential to create a considerable hole in your wallet. With the help of the investment plan, you maintain an overview and ensure that you do not overextend yourself financially.

4. Calculate profits in the profitability plan

Once you have documented your ongoing costs, one-time expenses, and expected revenues, you can now estimate when your company will record its first profits. That is a big moment that you work toward as an entrepreneur. Here too, however, you should not let wishful thinking seduce you, but remember to rely on realistic figures and calculations. You calculate your profit by subtracting your costs and taxes from your revenues.

5. Determine financial needs in the capital requirements plan

Now you have a comprehensive overview of your company’s finances. In most cases, company founding is associated with high expenses that sole proprietors and startups cannot usually cover themselves. In the capital requirements plan, you therefore determine what financial resources are already available to you now (for example, your own assets) and how much money you still need to realize your plan.

To finance your company, you have two options: on the one hand, you can use equity capital, which you obtain for example from your personal savings or from investors. On the other hand, you can use debt capital, such as loans or credit.

6. Discuss capital sources in the financing plan

The financing plan goes hand in hand with the capital requirements plan. Once you have determined what amounts you still need, it is now about listing concrete lenders. This includes not only information about who provides financial resources, but also the question of what conditions apply. High interest rates and repayment rates can limit your options and represent significant cost items. Many young entrepreneurs do not pay enough attention to them, which takes its toll later.

7. Ensure payment capacity in the liquidity plan

Insolvency befalls most companies within the first three years. It usually means the end of the business and the end of many dreams. Therefore, constant payment capacity is one of the cornerstones of a successful company.

Your company is solvent, simply put, when it has enough income to cover all expenses. Of course, you cannot say with certainty at the beginning whether this will be the case at all times. But you can work with realistic figures and create financial planning that serves as a guide for you.

What doesn’t go into a financial plan?

To create successful financial planning, you illuminate the objective conditions of your business venture, the market, and the competition. Wishful thinking, hopes, and dreams have no place here. Instead, you only include factors and figures that you can explain or even prove.

What mistakes should you avoid when financing a company?

1. Investing too little time

The question of how you can finance your company is not answered in the blink of an eye. To find the best strategy for you, you must conduct a comprehensive analysis of the status quo and your individual circumstances. This takes time and effort that many new entrepreneurs would rather avoid. But if you invest energy right now, you create a sustainable foundation for your company’s future.

2. Short-term planning

The future is uncertain and is influenced by multifaceted factors and processes. This makes planning your company’s finances uncertain, which is why many entrepreneurs limit themselves to the near future. Long-term planning, however, forces you to think sustainably and work toward lasting success. It ensures that you do not run out of money after the initial phase and have to squander your previous successes.

3. Idealized notions

Your business idea has potential – otherwise you would not pursue it. However, quick money is in most cases a mere wish, which you should not chase. Therefore, try to view your company and its financial needs as objectively as possible and ask friends or family for honest feedback.

Conclusion – creating well-founded financial planning

To create a business financial plan, you must engage with concrete values and developments and draw your conclusions from them. This is particularly challenging for beginners. However, when done correctly, the financial plan provides both you and your lenders with a helpful basis for decision-making. You can build the developments of your company on good financial planning and lead it structured to success.

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