Creating a financial plan for your business - why solid planning is so important

If you want to start a business, you do not only need a brilliant business idea and a plausible business plan, but also a financial plan that takes different scenarios into account. Many founders are so electrified by their business idea in the preliminary phase of the start-up that they completely ignore possible financial risks when preparing their financial plan. We at X-GROUP GmbH in Berlin also have to experience this every day.

While the business plan serves to convince banks and investors of the viability and profitability of the business idea in order to acquire funding, the finance plan lists all the costs that the company will face from day one. Most of the time, the lean periods are much longer than expected. So it sees also the specialized advisor for conveyances and business startup Daniel Schäfer. In short: Also a Businessplan for the establishment subsidy describes in all rule only the best base scenario and the potetials of a business idea and the financial plan does not contain all costs.

Finanzplan einfach & richtig erstellen mit kompetenten Existengründungsberatern

Create a financial plan simply & correctly with competent business start-up consultants

1. carefully plan the costs for the start-up

Before a company can get started, various costs are already incurred. For example, for consulting, start-up seminars or software to plan the foundation. These are pre-establishment costs. However, the total capital required to start a business is significantly higher. The entrepreneur-to-be must already think about his investments in the run-up to the start-up. his for example includes, the laptop, the operating and business equipment and possibly the warehouse.

All of this must be reflected in the overall capital planning. However, there are other costs as well. If the entrepreneur starts with a company, i.e. a UG or a GmbH, between 500 and 2,000 euros can quickly add up. Further costs arise if the founder consults a specialist lawyer or a management consultant and possibly registers a trademark. This can quickly add up to several thousand euros in start-up costs.

2. Market entry costs are often underestimated

Apart from these costs, which are connected with the "formal" foundation of a company, the most important thing is still to come, namely the market entry. That is, how the company wants to present itself to the market. This starts with the business cards, which may be created through an agency that accompanies the strategic positioning of the company to be founded and advises the entrepreneur. A keyword/SEO analysis or a competitive analysis are just as much a part of this as a website or market entry campaign via social media such as Facebook and other channels.

These things really go into the money and costs of five, ten, twenty or thirty thousand euros in market entry costs can quickly arise here. If an office or store is to be rented, there are also costs for the broker's commission and the deposit, which can sometimes be as much as six months' rent. Possible conversion measures and space development costs must also be taken into account.

3. the fixed and variable costs also belong in the financial plan.

For many people, the financial planning for the company to be founded ends with the preparation of the market entry costs. However, this does not cover the costs by a long shot. The running costs must also be included in the financial planning. A distinction is made here between fixed costs and variable costs. Fixed costs are the regularly occurring fixed costs such as rent and ancillary costs, electricity deductions, insurance, accounting costs, etc. They must be taken into account in the same way as personnel costs. They have to be considered as well as the personnel costs for employees and other service staff. Finally, there are also the variable costs. These include the ongoing costs for consumed products or goods for the online store, which must be continuously reordered when sales take place.

External service providers or third-party suppliers are also included if the entrepreneur works together with them. Interest for capital services and taxes are also included in this cost block. What remains after deduction of all costs of the incomes is then the entrepreneur salary, which can vary in dependence on the conversion from month to month.

4. everything depends on the sales development

One thing is clear: A laptop, software, office equipment, etc. must be purchased in order to get started in the first place. If you can already plan your sales development, you will know approximately from the sales curve when the company can bear the costs or when the break-even point, i.e. the break-even point, is reached. From this point on, the company generates profits.

If the company can even support itself, then the entrepreneur's salary is already included. Many start-up entrepreneurs make the same mistake over and over again when writing their first financial plan. Although they know their complete capital requirements and the revenue potential of their business idea, they still forget one thing: the company does not generate the revenue to cover its running costs on the very first day after entering the market.

Financial plan made easy

Tables, figures, calculations - an entrepreneurial finance plan can quickly become confusing and exhausting.

But it doesn't have to be - if you concentrate on the essentials.

In this video, Daniel Schäfer shows what really matters for a financial plan to work.

5 The biggest mistake when creating a financial plan

When founders create their financial plan, they often ignore the fact that the targeted revenue needed to make the business sustainable is not there from day one. It takes a lead time of a few months for sales to develop to the point where they cover all costs. The only problem is that the costs for rent, electricity and personnel, i.e. the fixed costs, run from day one and have to be covered. The tax office may already be demanding taxes as part of the advance sales tax return, the banks want interest on the loans taken out and, finally, the supplier also wants to see money for the goods he has delivered.

Last but not least, the founder also needs money to cover his current living costs, if he does not receive transfer payments such as ALG I. Every newly founded company goes through such a financial lean period during the start-up phase. If the own means are not sufficient to bridge this phase financially, it can quickly become tight. In the first month, there may be a shortfall of 7,000 euros, in the second 6,000 euros and in the third 5,000 euros. This can quickly lead to losses of up to 25,000 euros or more in the first 18 months after the start-up, as the running costs accumulate. In the worst case, this can lead to the company sliding into insolvency.

6. consider the worst-case scenario when creating a financial plan

In order not to fall into this trap, the founder should definitely create a worst-case scenario. In other words, calculate the initial lean period generously and add the money needed to bridge this phase as a working capital reserve to the total capital requirement. If the young entrepreneur comes to the bank after six months, after 10,000 to 15,000 euros have already accumulated and all credit lines have been exhausted, he will not receive a new loan from the bank.

In the bank's opinion, the company was simply badly managed. In addition, projects that have already been started or financed will not be financed a second time. Apart from that, the time from application to approval of a new credit line would take at least one to two months. By then, the company may have long been insolvent. However, if this worst-case capital requirement of around 25,000 euros is factored in from the outset and business develops better than expected, the company will have this amount in its account at the end of the year. And that doesn't hurt, given the current low interest rates. The entrepreneur has several options. He can repay the money early with a small prepayment penalty, use it for other investments, or leave it in the account as a working capital reserve.

7. When preparing a financial plan, the following points should be taken into account.

All necessary costs should be planned in order to be able to open. Also, all running costs for at least 36 months should be budgeted as working capital reserve. The sales development should be planned under different aspects. In addition to a standard scenario, which takes into account the development that can realistically be assumed, and the best-case scenario (business develops significantly better and faster than planned), the worst-case scenario should definitely be taken into account. This concerns the liquid funds that are needed if the ramp-up phase of sales is delayed, i.e. it takes longer than planned for the company to run properly and reach the break-even point. With the working capital reserve, the company always has enough liquid funds in the start-up process to survive the difficult initial phase after the company is founded.

If you want to optimize your business plan for the start-up grant or are looking for more information on the topic of creating a financial plan, you will find a competent partner in X-GROUP GmbH Institut für Gründung, Finanzierung und Geschäftsentwicklung in Berlin.

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