Step-by-step plan: insight into your finances

Use the following questions to assess your business's financial situation:

1. Do you know how much money is coming in and going out, now and in the future?
2. Do you take into account VAT, income tax, and wage tax? You ususally have to pay these later.
3. Do you have insight into the (financial) health of your company?
4. Can you explain your solvency, profitability, and liquidity (see step 5) to others?
5. Are you well prepared for a meeting with a financier?
6. Can you determine the financial feasibility of your plans, with or without the help of a specialist?

Is your financial plan ready for critical review? In any case, include the balance sheet, profit and loss account, and ratios or proportional figures in your financial plan as a basis. These form the foundation of a financial plan. They are also the components that give financiers insight into your numbers. Read about each component in the following steps.

The balance sheet is an overview of assets, liabilities, and equity at a particular point in time This is usually 31 December. You include everything that is present in the company at that time, such as all debts, goods, and outstanding accounts. You record all this in a table. This is referred to as your balance sheet or income sheet. You describe everything briefly and clearly.

The profit and loss account provides an overview of the income and expenses of your company in a year. This allows you to see whether your company is making a profit or a loss. The profit and loss account and the balance sheet together make up the financial statements.

You must file the financial statements with KVK. Small businesses with fewer than 50 employees and a maximum annual turnover of €15 million are not required to publish their profit and loss account with KVK.

Before granting credit, financiers like to assess the financial situation of your company. They want to know whether your company can meet its payment obligations and whether it is interesting for them to invest in the company. Ratios are used to assess your company financially. The most commonly used ratios are liquidity, solvency, and profitability.

Liquidity

This is the extent to which your company can meet its payment obligations in the short term. The liquidity of a company consists of 4 key figures:

1. Current ratio

   This key figure indicates whether (short-term) debts can be paid from the current assets. This includes stock.You calculate this as follows: Current assets / short-term debt = current ratio.

   A positive value for this ratio is at least 1, an average company has a ratio between 1.2 and 1.5.

2. Quick ratio

   This ratio also indicates whether (short-term) debts can be paid from the current assets. The difference with the current ratio is that any stock (your product supply) is not included in this calculation.

   You calculate this as follows: Current assets - stock / short-term loan capital = quick ratio

   A positive value for this ratio is at least 1.

3. Stock term and debtor term

   In addition to the quick ratio, you take the stock term and debtor term into account. With the stock term, you calculate the average lead time of the stock. The standard is a maximum of 30 – 90 days (industry dependent). You calculate this as follows: (stock x 365) / purchase = stock term.

   In addition, you calculate the average lead time of the debtors. The standard is a maximum of 30 – 60 days. You can check this per debtor and calculate it as follows: (debtors x 365) / turnover = debtor term

4. Net working capital

   The (net) working capital is the difference between the current assets and the short-term loans on the balance sheet of a company. You calculate this as follows: Current assets – short-term loans = net working capital.

   The (net) working capital is positive when the current assets are greater than the short-term debt.

Solvency

Solvency is the ratio of your equity to the required capital. This indicates whether the company can pay its debts in the long term. You calculate your solvency as follows: (equity capital / total capital) x 100% = solvency.

The bank expects that you as a (starting) entrepreneur also contribute equity, usually at least 20%. In certain sectors, such as the catering industry, this can even rise to 50%.

Profitability

Profitability means how profitable your company is. You compare the operating result (profit) with the average total invested capital. This shows the extent to which you are and remain successful as an entrepreneur. You calculate this as follows: (corporate profit / average total invested capital) x 100% = profitability.