Financial plan

Equity

The part of the investments you finance yourself is called equity. This can be money you have available yourself such as savings or business assets that you have already bought (such as a car or a computer you already own). In a financing application, so-called 'subordinated' loans or venture capital, for example from family, can count as equity.

Loan capital

Loan capital is money that business financiers (banks and suppliers) are willing to lend you. There is a distinction between short-term debt (such as overdraft, supplier credit, taxes payable) and long-term debt (such as a mortgage or long-term loan for inventory).

Solvency

Solvency is the ratio of your equity to total required capital. It indicates the extent to which your business can meet long-term debts. Banks expect a starting business to bring in equity, usually at least 30%. In certain sectors, such as hospitality, this can be as high as 50%.

What should a financial plan include?

A financial plan consists of 5 budgets that detail the minimum requirements for starting your business, the investments you will need to make and how you plan to finance them. This allows you to determine whether your business idea is viable. What turnover do you expect to generate? And will your business be profitable, or not? It also forces you to examine cash flow and whether you will have enough money each month. Answering all these questions in your business plan is the key to your success.

• Investment budget: your investment budget should include a list of the investments you will need to start your business and those that can wait until a later stage. This is an indicator of the minimum amount of money you will need to get started.

• Financial budget: your financial budget should detail how you intend to finance your investment budget. Options include personal capital (equity capital) or loans, e.g. from a bank (borrowed capital), or even a combination of the two.

• Operating budget: your operating budget should show that your business is profitable. This will allow you to estimate your turnover. You can then analyse the costs to keep your business running. Combining these, you can determine whether you will make a profit or a loss.

• Cash flow budget: income and expenditure can fluctuate greatly over a year. Your cash flow forecast should include all income and expenditure over a given period, e.g. per month or per quarter. This will highlight when you will have surplus cash and when you will need extra funds.

• Personal expense budget: determine how much money do you need to cover your expenses. Then base your financial plan on your personal situation. That will be your personal budget. This involves calculating how much money you will need for you and your family, how much you will have to pay in tax and what your operational costs will be. This allows you to work out your minimum turnover to make ends meet.

SME financing institution Qredits has free tools, including templates for a business plan and financial plan.

Video Making a financial plan: investment and financing budget

You start for your financial plan by making the investment budget and financing budget. KVK explains how to make these in the video Make a financial plan: investment and financial budgets.