Create a financial plan and understand your finances

What is a financial plan

A financial plan is an overview of the financial side of your business. It shows what investments you need, how you will pay for them, what turnover and costs you expect, and whether you have enough money to pay your bills. You draw up a financial plan when you start a business. But also when you want to grow, invest, or are considering a major change to your business.

A financial plan has 4 business budgets:

• the investment budget
• the financing budget
• the operating budget
• the liquidity budget

You can also draw up a personal budget. This allows you to calculate how much money you need for personal expenses and what amount of that must come from your business.

The 4 parts of the financial plan

A financial plan has 4 business budgets that work together:

1. Investment budget

In your investment budget, you list what you need to start or grow your business. This includes business assets, stock, business premises, and other investments. You calculate how much money you need for this. You should also take into account the VAT you pay on your investments.

2. Financing budget

In your financing budget, you set out how you will pay for the investments listed in your investment budget. You can use your own funds, a loan, or other forms of financing. The budget shows which part you can pay for yourself and how much money you still need to raise. You should also take into account any funds you may need temporarily to pre-finance VAT or other expenses, for example.

3. Operating budget

In your operating budget, you calculate your expected sales and costs, and decide whether your business will make a profit or a loss. You estimate your sales and deduct the expected costs from it. The difference is your expected profit or loss.

4. Liquidity budget

In your liquidity budget, you list when you expect to receive money and when you make payments. This allows you to see whether you have enough money at any given time to pay your bills. Timing is important here. A payment will not always be made at the same time as delivery. And a customer may, for example, pay later than the date on which you expect the payment. Seasonal factors can also cause income and expenditure to vary from month to month.

Draw up a personal budget as well

In a personal budget, you list your expected personal income and expenditure. This allows you to work out how much money you need for your personal expenditure and how much income your business needs to generate to cover this.

A personal budget is particularly important if your income comes mainly or entirely from your business.

How to use a financial plan

Justify your financial forecasts

Make your financial plan as realistic as possible. For example, use price quotes, past sales data, facts about your market, and deals with customers and suppliers to support your forecasts. If there are any doubts, consider different scenarios. For example, what happens if your sales are lower than you think or your costs rise? This will help you spot the money risks in your plans.

Adjusting your plans

A financial plan is not a one-off calculation. If your sales change, you plan to invest again, or your costs change, you will need to adjust your budgets. Compare your budgets often with the real numbers. This will let you see in time whether your results are moving away from your hopes. You can then make changes, for example by getting more funding. Or, you may see there is room for new investments, or that you need to cut costs.

Applying for funding

Do you need financing from a bank, investor, or other lender? If so, your financial plan will help you show how much money you need, what you will use it for, and how you expect to make it back.

A lender does not just look at your figures. Your plans, the market, your business, and your experience as an entrepreneur also play a part. So, make sure you can explain and substantiate the figures in your financial plan.

Example of a financial plan

On the Qredits website, you will find an example of a financial plan (in Dutch).