Are you planning to start a new business? Then the role of your accountant is crucial. One of the most important tasks for the accountant is to draw up a financial plan. Recently, the minimum content of that financial plan has been tightened. But what should such a financial plan contain nowadays? According to the auditor Guy Parmentier, these are the 10 steps you must follow in the context of establishing and drawing up the financial plan.
1. Prepare an income statement as part of your financial plan
Prepare an income statement with correct depreciation and taxes over 24 months. If there are significant seasonal fluctuations, this must be done monthly to detect any liquidity shortages in certain months.
2. Determine the working capital
Determine the amount that you will have to allocate per year for your goods in stock and the number of days that invoices from customers and suppliers will be open. The aim is to record the working capital requirement. This can also be implemented monthly if necessary (see step 1).
As a starting entrepreneur, the number of days of stock rotation upon incorporation is often unknown. In that case, it is best to determine a fixed amount for stocks (per month if necessary). This step will allow you to calculate your working capital needs.
3. Stick an amount on outstanding invoices
Take the turnover from the profit and loss account and calculate the outstanding invoices with customers and suppliers in absolute amounts.
4. Take stock in 24 months (or two years)
Prepare this balance sheet in accordance with the annual financial statement. It is important that you record sufficient liquid assets to allow the company to carry out its daily operations practically. It is always an estimate.
You must implement this if you wish to record the amount of capital to be deposited. Conversely, if you wish to determine whether the capital that will be paid up is sufficient, this step is the last step.
You cannot have two variables: it is either a fixed amount of liquidity (to be able to fix the amount of capital) or a fixed amount of capital (to determine whether there is no liquidity problem).
5. Calculate the working capital requirement (WCR) for both years
The working capital requirement is the amount of cash required to run your business while waiting for the customer to pay. You can calculate your working capital requirement by the formula:
Stocks + Receivables – Suppliers
A positive working capital requirement is therefore negative. This means that you do not have enough capital to meet your short-term obligations.
6. Rework to a compressed balance sheet (= managerial balance sheet)
The compressed balance sheet considers the working capital requirement as a whole on the compressed balance sheet. The movements in working capital requirements will have a direct impact on liquidity. Hence the importance of this step.
7. Calculate the net cash position (often not yet available 2 years after establishment)
The net treasury shows the excess liquidity. Step 7 is relative within the financial plan. Determining the net cash position is an essential step in liquidity testing.
8. Calculate the change in working capital requirement
Compare the working capital requirements of year X with year X-1. The change reflects the change in working capital requirements.
9. Calculate the cash flow (ECF) taking into account the movement in working capital requirements
Check that what is left after payment to the banks is enough to finance the increases in working capital needs.
10. Make the mandatory cash flow statement.
These 10 steps ensure the preparation of a solid financial plan. In case of seasonal fluctuations it is absolutely necessary to carry out this exercise every month.
A good financial plan can open many doors
A good financial plan increases your credibility as a starting entrepreneur. It gives lenders a more solid position in their lending and it provides more clarity about short and long-term credit needs.