Financial Planning

Why do you need a financial plan?

The financial plan is a key management tool for you as a founder. It gives you an overview of your financial position and allows you to plan ahead with some degree of certainty. It means you can identify financial risks at an early stage and respond to them. Financial planning for your business reflects your business decisions and also gives outsiders (e.g. a bank) a good impression of whether your company will be financially successful.

How to draw up your financial plan

Your financial plan is a vital part of your founding journey and is designed to help you to accurately assess your financial opportunities and risks. We are convinced that it makes sense for all aspiring founders to deal with the issue of finances. This will help you avoid liquidity bottlenecks at a later stage, and you will always be on top of what you should earn and what you can spend.

As finances are often regarded as a burdensome subject, we at Foundera can support you with a financial plan that is stripped down to the essentials. You should be aware at all times that only realistic financial planning can serve its purpose. There’s little point in inflating your plan with fictitious and unrealistic projections – reality will catch up with you sooner or later.

Content and structure

Because financial planning is such a complex issue, you will find a wide variety of structures, examples and templates floating around on the internet. We have taken a deep dive into the issue and talked to investors and banks. They recommend the structure described below for a simple introduction to the subject:

1. Starting costs

Starting costs include all costs that are incurred before you have even started your business project. Examples of these starting costs include registration fees, costs for trademark and industrial property rights, and consulting costs. Calculating the starting costs will also help you to identify the seed capital you will need. 

2. Capital expenditure

Costs for capital goods are usually incurred once and can be deducted or written off for tax purposes. Capital expenditures are long-term investments of capital in tangible assets or production equipment (machinery, plant, infrastructure, etc.).

In addition to capital expenditure costs, the investment account must also include “depreciation”, which is the reduction in value that occurs in the course of the useful life of an asset as a result of its use. For example, if you buy a printer worth CHF 1’000, this amount must be recorded as a one-time investment. If you depreciate the printer over two years, you must record an amount of CHF 500 each year as depreciation.

3. Expenses

Expense items include various costs incurred in the course of your business activities, all of which are related to your revenue (see 4. Revenue). Examples include purchases of materials and goods. If you generate higher revenue, you usually also have higher costs because your cost of goods is higher. However, this does not apply to purely digital business models, or the costs only grow marginally as revenue increases.

If you hire staff, the monthly recurring personnel expenses are also included, of course. You need to record not only the gross wages, but also other expenses such as travel expenses, continuing professional development and social security contributions.

Other cost centres include operating costs, marketing costs, logistics costs and the similar. A detailed list of your cost centres will help you later to optimise the structure of your inventory and procurement.

4. Revenue

You itemise all revenue in detail for the income statement as part of your finance plan. It is a good idea to create categories to ensure the best possible overview. You then record the various revenue items within the categories and can thus calculate your total revenue at the end of the process. One example is revenue from services or revenue from the sale of goods.

Important: if you are registered for VAT, you should always record revenue net and gross. This is essential for the applicable tax liability. After deducting all your costs, you can then see directly how much VAT you have to pay and what income or profit tax you will have to pay.

5. Liquidity planning

Liquidity planning tells you how your company’s cash balance changes over time and what cash flows you can expect. This enables you to identify liquidity bottlenecks in good time and to arrange for any capital you may need to be raised.

Among other things, this includes your holdings of cash and cash equivalents, outstanding receivables from customers (debtors), liabilities to suppliers (creditors) or capital contributions from investors. The liquidity plan therefore also reveals how much capital you will need to start your company.

6. Projected income statement

Within your financial planning, the projected income statement is intended to show the extent to which your business model is financially viable, i.e. “profitable”. The bottom line after taxes should ideally be a positive amount, but in the case of newly founded companies, this can of course also be lower in the first few years.

7. Planning assumptions

You have the option to factor assumptions into the financial plan. These are helpful for you insofar as they establish the basic conditions and thus also the direction of your financial plan. Examples of such planning assumptions include:

• Growth in the number of customers/users
• Market potential
• Price model

Conclusion

Preparing a financial plan is not always easy for founders because they have to make assumptions at many points. The financial plan should be constantly updated and adjusted in the first few months so as not to lose your financial overview. In the subsequent stages of your business activity, financial plans are commonly replaced by real-time data from the accounting system.

You should now have covered all the important topics on your journey towards working for yourself. The next step is to find the right legal form for your new company.