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Digital Innovation: How to write a full-fledged financial plan within an hour

90% of the top 50 start-ups of 2018 continuously work on their financial plans. That’s the result of a recent study conducted by the German web portal Für-Gründer.de. In most cases, however, the plan is done the old-fashioned way: based on Excel.

Digital solutions, which are otherwise used by all companies for all kinds of matters, are not common yet in this context. Excel, on the other hand, is considered error-prone, time-consuming and user-unfriendly — it has never been particularly easy to print a financial plan nor does the own spreadsheet normally meet the requirements of banks and investors.

From sales to costs — and what remains at the end

Every professional financial plan starts with the calculation of the turnover — obviously often done too optimistically, as entrepreneurs fail to consider all relevant factors (such as holidays, off-season periods, capacity constraints, etc.).

Secondly, all costs must be considered: sales related direct costs, fixed costs, marketing, and personnel, including social security contributions, must be taken into account. Additionally, potential investments in product development, machines, office equipment, and other items need to be recognized in the financial plan too.

All sales and costs must be considered in liquidity planning, which reflects the development of the account balance. The important thing is that sales are not the same as incoming payments. Especially larger customers often ask for generous payment terms, which obviously affects the working capital needs. Possible tax prepayments must also be considered in the financial plan. Ultimately, the account balance shows the total capital requirement. If it is negative, then additional funding is required. Obviously, the aim is to ensure that liquidity planning does not end up with a negative account balance at any point in time.

Subsequently, the profitability calculation serves to conclude the examination of the economic efficiency of a project/company. It summarizes the essential key data and determines various key figures that enable a comparison of the respective peers within a specific sector.

7 things you should do for an effective financial plan

So, what are the Do’s and Don’ts? We’ve got 7 tips for you:

1. Structure is key: Follow the common standards. You start with the income calculation and you end up with the profitability statement. Don’t forget anything in between (see above).
2. Be realistic: Don’t use industry average values for your sales-planning right from the beginning. It normally takes 12–24 months to get even close to average sales levels.
3. Mind the marketing expenses (seriously!): Instead of research on standard values you should spend your time in answering the question “What does a new customer cost to me?”. It’s a huge expense factor and it can end up hard if you have not come up with viable numbers.
4. Gross vs. net values: This is important for your liquidity plan. Net values are shown in the income statement, but for liquidity, you use gross values, i.e. including VAT.
5. Also think about negative experiences: If customers have payment terms of several weeks, liquidity bottlenecks can occur. Founders often forget about this point in their financial plans.
6. Plan your own salary: Please be mindful, that you must cover your private costs too. Therefore, your own salary should also be considered in the financial plan.
7. Don’t use Excel anymore: It’s 2019 and we’re living a digital life. Excel is awesome — but not for writing a financial plan!

Unternehmerheld solution

Wait — you said ONE hour?

In order to solve issues regarding the financial issues, Unternehmerheld has decided to launch a SaaS solution that allows users to create a bankable, full-fledged financial plan within a short period of time, that not only provides all required data but also sets a new standard. The software guides users step by step through eight calculation steps.

The advantage compared to Excel is that the digital solution recognizes all relevant factors and takes over the calculation methodology. As a user, you don’t have to worry about anything, just enter your data step by step.

This guest article is written in cooperation with Unternehmerheld, a German platform which helps you to write your own financial plan: https://www.unternehmerheld.de/plan/finanzplan/