Microsoft Innovation Center Brussels

Preparing a financial plan (“FP”) sounds clearly like an obvious step in the maturation process of a start-up project. Nevertheless, some considerations should be specified so that the true and full meanings of such a plan can be understood and so that it can properly be developed.

Financial Plan ?

It can basically be considered as the financial translation of your project and thus of your business plan. Following this comment you will have understood that financial plan and business plan are not identical concepts, which is a common misunderstanding.

The FP can also be viewed as a tool for projection, simulation and planning, certainly in the early stage, but also after the start of the activity.

For what use?

Here are some of the main purposes of a financial plan:

- Limit & mitigate risks and uncertainty

- Check the viability of the project

- Determine the level of financing needs and the optimal mix of financing sources

- Serve as support for third parties such as fund providers and other potential partners

- When/if creating a new company, fulfil a legal obligation

This shortlist points clearly out that a FP is first of all a useful instrument for the entrepreneur himself.

Where to start ?

I would strongly suggest not starting to try developing your own version of a FP but on the contrary to start using an existing template … but not just any template you can find on the web.

Indeed, even if there is no such thing as a perfect template, a good one should at least (1) integrate data linked to revenues, financing sources, costs (opex) [including HR costs], investments (capex) & some working capital aspects (on a monthly or trimestrial basis) and (2) based on those data, provide projections regarding Profit & Loss, Assets & Liabilities and Treasury.

Further, some templates could be more accurate for some kind of projects than others and it could be necessary to develop upstream from the template a more tailor-made modelling of some data of your projects, notably for the revenues part.

Different institutions propose their own version of FP template, such as this version for start-ups: www.monstarterkit.be proposed by the Brussels Enterprise Agency (BEA).

Based on your Business Plan, start filling in the data linked to your project on a 3 year basis. As it is of the utmost importance to be as credible as possible, consider (1) objective and factual data for everything that can be predicted, thus mainly regarding the costs, even if it requires some extra work from you and (2) clear hypothesis linked to your business plan, for the revenues part.

A few tips regarding the revenues: (1) Never base your revenues projections on your costs ! ; “spontaneous sales creation” in an excel sheet is one of the most common mistakes to avoid. You would lie to yourself and risk to loose credibility in the eyes of third parties ; (2) consider a realistic start level and a realistic growth rate during the first months of the activity : your business will most probably start slower than expected (which btw should impact your treasury !).

Adding an appendix to your FP explaining very concisely the origin of the most important items & figures included in the FP could be pretty useful, especially when transmitting your project to third parties in order to get advice and/or financing. This will help them in their analysis and will back both the credibility of the project itself and the credibility of the entrepreneur !

Keep also in mind the necessity to have a full coherence of the information integrated in the different documents, including thus the financial information.

And then what ?

The implementation of a first draft should allow you to come to a series of conclusions and, most probably, will force you to make some adjustments to your FP and even, in some cases, to your business plan itself.

Do not be afraid by this perspective as it is logical for a FP to evolve and to be completed through an iteration process.

Further, it is important to underline that it is more comfortable to face reality early in the process and to take the necessary measures accordingly than facing too many big surprises after launching the business, just because you were too lazy to do your homework and/or too afraid to see the projected results.

Need some help ?

It would be pretty understandable for you to feel lost with all this, especially if you are not comfortable with figures and/or not familiar with financial & accounting concepts. In such case, you could consider asking for some support, from (1) coaching advices provided by private or public professional actors, such as the Brussels Enterprise Agency www.bea.irisnet.be & www.1819.be to (2) full externalisation of the process to an accountant or other professionals with similar profiles. In the first case, you will be helped so that you can achieve the process yourself, meaning the added value will be higher (learning process and adequacy with the project), while in the second case you will theoretically save more time (not money), but will not benefit from extra added value.