Investment budget: calculate how much money you need

What is an investment budget?

An investment budget lists the business assets and other expenses you need to start or grow your business. You usually look ahead 1 to 3 years.

Examples include machinery costing €8,000, computer equipment costing €5,000, a company vehicle costing €10,000, or the renewal of business premises costing €5,000. These investments remain in your business for more than a year and are called fixed assets.

You also include inventory, start-up costs, and money to cover your business during the initial period in your investment budget. These investments remain in your business for less than a year and are called current assets.

The investment budget is part of your financial plan.

How to create an investment budget

Start by making an overview of what you need to carry out your business plans. Then find out how much these investments will cost. Request quotations for larger purchases. Pay attention to the price, what is included, and any additional costs, such as transport and installation costs or a security deposit.

Enter these amounts in your investment budget and also include an amount for unexpected expenses.

Example: Suppose you are starting a workshop. You need €12,000 for machinery, €5,000 for the renewal, and €3,000 for your initial inventory. You also want to keep €5,000 in reserve to cover the first few months. In total, you need €25,000.

Amounts including or excluding VAT?

Are you registered for VAT? Then include investments in your budget excluding VAT.

However, you must be able to temporarily pre-finance the VAT you pay to suppliers. Therefore, include this separately in your budget as 'VAT pre-financing'. If you meet the conditions, you can deduct this VAT as input tax in your VAT return.

If you cannot deduct the VAT, include the amounts including VAT.

Investment or regular business costs?

Not every expense is an investment. A machine, computer, or company vehicle that you use for several years is an investment in a business asset. Costs such as rent, insurance, advertising, and telephone charges are regular business costs. These belong in your operating budget.

You also record a business asset differently in your accounts than a regular cost item. You must depreciate a business asset that you use for more than 1 year.

Take working capital into account

You need money not only for investments, but also to pay your suppliers before your customers pay their invoices. Your revenue may also be lower in the first few months than it will be later on. The money you need to bridge these differences is called working capital.

A liquidity budget helps you see when money comes into your business and when you spend it. This shows whether you will have enough money available at the right time.

Example of an investment budget

How do you pay for the investments?

Once you know how much money you need, you can decide how you will finance this amount. You set this out in a financing budget. You may be able to finance part of it yourself. For the remaining amount, you could take out a business loan, use leasing, or arrange crowdfunding. You can also combine different forms of financing. This is known as stack financing.

Investment budget and your financial plan

The investment budget is part of your financial plan. Complete your plan with a liquidity budget, operating budget, and financing budget.

Also add a personal budget showing how much money you need for personal expenses and how much income your business must generate to cover these costs.