Step-by-step plan to make a financial plan for your financing application
Do you need financing for your business? Banks and investors will carefully assess the financial health of your business before they make a decision. They will usually ask to see a financial plan. This step-by-step plan will help you make such a plan.
To make a financial plan, you need a clear overview of your financial data. Financiers usually ask about the following information:
- turnover
- costs
- investments
- invoices
- taxes
- bank details
It is important that this data is complete and up to date. This allows a bank or investor to assess the performance of your business and quickly decide on your application.
The balance sheet is a mandatory part of the financial assessment. It provides an overview of assets, liabilities, and equity capital (your private money) at a specific point in time. This is usually on 31 December.
What do you put on the balance sheet?
The balance sheet shows the value of the assets and liabilities of the business. For example, your inventory and money still to be received from customers. But also financing (debts, loans, investments) and outstanding accounts with suppliers. Show assets and liabilities separately:
- Assets: inventory (goods and materials you use or sell), accounts receivable, cash, and money in the bank
- Liabilities: equity capital, loans, and other debts
An operating budget shows the turnover and costs you expect to have in a financial year. It is also known as a profit and loss account or income statement. This enables you to calculate whether your business is making a profit or a loss.
Banks and investors use this information to assess whether your business has enough income to pay interest and repay the loan. Both now and in the future.
Example of a profit and loss account
You will find an example of an operating budget on page 17 of the KVK Book of Finance.
Learn more about creating an operating budget.
A liquidity budget, or cash flow budget, shows how much money you expect to come in and go out over a specific period. This tells you when you will be short of funds and when you will have money left over. This is also known as the ‘cash flow’.
Financiers consider the liquidity budget important because it shows whether you can meet your short-term obligations. You consider the following for a typical month:
- expected income
- expected costs
- the amount remaining in your business account
In addition to your balance sheet, operating budget, and liquidity budget, financiers also use several calculations to assess the financial health of your business. These calculations are known as financial key figures or ratios. These show the relationships between different parts of your figures. They provide a quick insight into the financial strength of your business.
There are several calculation modules for each key figure:
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:
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.
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.
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
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 shows how much of your business is financed with your own capital. A higher percentage means you are less reliant on external financing. Financiers view businesses with good solvency as being more financially stable.
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 indicates how much profit you make on the money invested in your business. This gives financiers an insight into the capacity of your business to earn money, and future opportunities.
You calculate this as follows: (corporate profit / average total invested capital) x 100% = profitability.
In an investment budget, you list the items or resources you need to start or grow your business. And how much that will cost. For example, equipment, stock, or a business premises.
Then, in the financial budget you show how you intend to pay for these investments. You make clear:
- how much money you are requesting
- what you will use the money for
- how much of it you invest using your own money
Having a clear goal for your financing helps financiers to assess your application more quickly and effectively.
Video Increasing financial insight: 6 tips
In this video from KVK, you will receive 6 tips to help you increase insight into your finances.
Use the settings wheel to get English subtitles.