What is a financing plan? It is one of the financial tables that can be found within a financial business plan (and in particular in our financial plan example), which allows us to understand how a company finances its needs.
In a financing plan, we then talk about needs and resources . The needs represent the sums of money that allow the creation and management of an activity. Resources are all the means that are used to meet those needs.
If you have more resources than you need, then there is a cash surplus.Generally, a company that performs well in the long term will have a cash surplus (which is also found in the provisional cash budget when cash inflows are higher than outflows).
Two types of financing plans must be distinguished. There is the initial financing plan, which allows the statement of needs and resources of a company to be made at the time it is created, and then there are the provisional financing plans, generally corresponding to a period of 3 accounting years.
In this article, we provide you with a simple and effective 3-step method to successfully build your financing plan .
STAGE 1: CALCULATE THE NEEDS TO BE SUCCESSFUL WITH YOUR FINANCING PLAN
Investments . Investments represent all the purchases that you are going to make for your company: material, equipment, land, buildings, patents, licenses, etc. Generally, these investments are found in the provisional budget but not in the provisional income statement.
The Variation of the Working Capital Requirement. It is probably the most complicated notion to understand in an Excel financial plan. The variation in the working capital requirement corresponds to the evolution of the working capital requirement between two accounting years. The working capital requirement is the money you need to finance a potential mismatch between cash inflows and outflows. For example, your customers may pay you one month after the billing (or delivery) date, while you must pay your suppliers in advance. This creates a need for money on hand: we call it the working capital requirement.
Bank loan repayments. They are the sums of money that you are going to disburse each month to pay off a loan. In the case of a real estate financing plan, it is interesting to compare this element with the rents collected.
STAGE 2: CALCULATE THE RESOURCES TO BE SUCCESSFUL WITH YOUR FINANCING PLAN
Capital contributions . It is the money that the partners have contributed to the company in exchange for a part of the capital (generally in the form of shares). They are also in the interim balance sheet.
The contributions in current account of the partners. It is the money that will be used to finance the operating cycle of the company (to buy material or pay salaries, for example).
Loan underwriting . It is the sum of money that you will receive after obtaining a loan from your bank.
The self-financing capacity. It is also a complicated concept to understand. It is calculated from the provisional income statement: it is the Gross Operating Surplus, plus the products that can be deposited in cash (such as financial income or extraordinary income) minus disbursable expenses (such as bank interest).
STAGE 3: THE CHECKS FOR SUCCESS WITH YOUR FINANCING PLAN
Initial needs should not exceed resources. You must be able to finance your needs to start your business, so make sure the resources of the start-up financing plan well exceed your total needs.
Verify the accuracy of the treasury variance amount. As you can see, the last line of the financing plan corresponds to the change in treasury or cash. This amount must be equal to the treasury variance that you will obtain in your provisional treasury budget.
A contribution from the partners must be included.Generally, it is hardly credible that one can be financed solely with "external" contributions (banks, investors, subsidies, etc.). As a general rule, members' current account contributions must represent at least 20% of the money received from external sources.
On the importance of the working capital requirement being as low as possible . You have to know that the vast majority of companies have a positive working capital requirement. This is why they must raise additional funds to finance their operating cycle. Certainly, a high working capital requirement makes your company more sensitive in the event of a crisis. This is why you should always have something on hand to cover this working capital requirement.
Succeeding with your financing plan is not difficult. It is necessary to demonstrate perseverance, rigor and attentiveness. You can also use our Excel business plan template.
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