Business plan and Finance plan

While the business model represents the most important cornerstones of your mental image of a ‘business edifice’, your business plan will have to combine these elements in a constructive way: creating the walls, ceilings and foundations, as it were. You should draw up your business plan with as much care as you would with the construction of your house. This is essential if you are to succeed in convincing your reader that the concept behind your business is a viable one.

If you are unsure about what form your business plan should take, think about who is going to read it (for example, a bank, investor, employment agency or competition jury) and tailor it to suit your audience.

In some fast-paced industries and sectors, such as start-ups in the digital industry, sometimes a business model canvas is used (instead of a business plan), which is designed to think through and visualise all aspects of a business model. There is also something called a “pitch deck” that can be created, which involves presentation slides in the form of a PDF file.

Formulate a business plan in your own words. Use short, simple sentences. It is more important to demonstrate that you have undertaken thorough research than writing a dazzling text.

Similarly, making sure that your projected figures are properly thought out to create a meaningful set of figures is also more important than just having a set of numbers that look nice.

If you do not have a business plan or a draft of a business plan feel free to use the Information Checker for Consultations (German) or the Business Model Canvas (German) to describe the essentials of your idea. You will be able to develop your business plan from this later if you require a comprehensive consultation or subsidies.

Our free online platform Founding Workshop NRW (German) can also help you create a business plan. Here you can structure your business plan and use lots more information and tools.

You will find detailed suggestions on how to organise the content of your plan by using the enclosed links and reading the relevant literature. So instead, we will concentrate here on the most important aspects of the document and the most frequent omissions within its overall structure.

In very general terms, not every section will be equally relevant to every start-up project. The same applies to the length of your document: there is no standard size. That said, fewer than ten pages of text (with single-line spacing and font size 11) would be slim indeed, and fewer than six pages practically emaciated. Of course, this is without the sets of figures and any annexes.

This is your opportunity to dazzle your reader. You should stress the advantages that only your start-up project can provide. If you like, you can include promotional claims, but you will then have to back these up in the chapters which follow. The most important information to include in the summary is the business concept, the expertise of the start-up team, the benefit to customers, the business’s USP, the potential level of sales and return on investment, the business’s legal form and its capital requirements. Basically, your readers should be able to decide whether they want in or out on the basis of the executive summary alone.

Explain to your reader what it is that makes you or your team especially well-qualified to meet the challenge ahead. Commercial expertise and a knowledge of the sector can be decisive: you will have to back these up in your CV and provide documentation.

Make a convincing case about what it is that makes your product or service new, better and more useful. In particular, what is the likelihood of it sustaining a long-term demand? Don’t forget that while being able to do something more cheaply but to the same standard may still be an improvement, this alone may not be enough in the long term. You must be able to put clear blue water between yourself and your competitors if you are to stand a good chance of surviving.

Describe and quantify your market and demonstrate your knowledge of how it works. Create a graphic representation of your potential target market, for example, based not only on age, sex and income, but also on their status type (student, manager, pensioner) and spending behaviour (“conformist”, “extravagant”). Also demonstrate that you are familiar with your competition and take them seriously.

Formulate your services as calculated products (even if they are services, bundle together price-based “service packages”, for example). Describe your costs, prices and sales volumes spread over your services. This lets the reader know which considerations form the basis of your figures. Define your sales channels. When it comes to your advertising, don’t simply include your advertising materials (flyers, websites, etc.), but also describe your advertising ideas and content. Estimate your advertising costs and the impact of advertising on your revenue.

The subject of organisation often falls by the wayside, particularly in the case of the ‘lone wolves’ who actually need it most of all. Specify how much time is scheduled for each activity. Also: are the team members playing to their skills? Who is responsible for what, and what is the pecking order?

It is at this point that the experienced reader of business plans will get a particularly good idea of the depth you have gone into. With that in mind, you should answer the following questions as accurately as possible: which of your strengths will help you seize which opportunities? What risks can be averted with which strengths? How can weaknesses be turned into strengths? How can you prevent your weaknesses from inflicting damage on the business?

The capital for financial planning and financing is based on Excel tables containing the corresponding calculations, which you incorporate into your business plan along with the necessary explanations (provided you have not already done this in the previous section). Be as detailed as possible here and substantiate your figures as best you can. In the case of planned acquisitions, conversions or external services, for example, get quotes and include these in the appendix of the documentation.

Also remember to include the cost of your living expenses. Research comparative figures for associations, consultancies and credit institutions. If you don’t find anything of use here, make some basic estimations on your own initiative. Further information on how to prepare financial planning can be found in the next section.

If you haven’t included your CV in the section on the person/people behind the business, enclose it with the document as an annex. The same goes for your financial calculations. Don’t forget the most important documents: these can include existing contracts and/or draft contracts (rental agreements, cooperation agreements, articles of association, etc.) as well as market analyses, trademark rights, and so on.

Anyone planning to enter self-employment with their own business concept generally intends to be in it for the long haul. If you are actually going to succeed in this, you will need to do some careful financial planning before starting up in business.
For budgeting, you can use our free Founding Tool (German).

Beware if you are planning to apply for a loan: don’t sign any binding contracts in connection with your new business and don’t enter into any other financial commitments (such as a rental agreement or ordering goods) before your financing has been approved!

Questions relating to costings, profitability, financing capital requirements and liquidity protection should be clarified in advance. Which investments need to be made? How high is the expected revenue and profit in the initial years post set-up? At any given point in time, can the solvency/liquidity of the company be ensured?

Generally speaking, setting up a company involves various costs and expenses. The available equity is frequently not sufficient for financing the venture, meaning additional financing options have to be developed. So for sound financing to be a possibility, you need a detailed plan of your capital requirements and investments, which shows the short-term and long-term capital requirements.

This breakdown into short-term and long-term considerations is essential, as there are different financing options that come into play. Long-term capital requirements are clear from the investment plan, in which you list all investments necessary for setting up the business along with the corresponding acquisition prices or costs. Cost estimates, price lists or even valuation reports should be used where possible; if not, do as best you can with initial estimates:

The first weeks and months post start-up are usually characterised by the fact that the operating costs and expenditures incurred are not initially offset by revenues, as there is generally a significant period of time between the initial incoming orders, processing the orders, and the first incoming payments. The resource requirements for this start-up period (such as wages, salaries, rent, insurance, advertising, interest, loan repayments, and even private expenditure) represent your short-term capital requirements. These are either to be funded through equity, an overdraft facility (current account credit) with the local bank or working capital financing with a fixed maturity.

Once you have identified your overall capital requirement, you have to think about how to finance this in the best possible way. The following section provides further information on how to go about this.
If you decide to opt for loan-capital financing through a bank or promotional loan, for example, you must ensure that the interest and repayment charges do not exceed the economic viability of your business. It is for this reason that you need to establish the threshold for interest payments.

This is a profit and loss calculation based on a forecast, which serves to clarify whether the expected annual turnover yields an adequate profit after deducting all operating costs or vice versa: how high does the annual turnover have to be for the business to be profitable and for you to be able to live off the profits?

Consider the fact that, with the same standard of living, the profit equating to the income of a self-employed person has to be significantly higher than the income of an employee: all of the costs of your national insurance payments, such as pension schemes, health insurance and accident insurance, are borne solely by you if you are self-employed. In the case of setting up a business after being unemployed, check whether it is possible to obtain any funding from your employment agency or job centre.

Your personal expenditure represents the absolute minimum profit you have to achieve. As a sole trader, your profit – i.e. the bottom line – is what you have to live off. If you are setting up a limited liability company such as a GmbH, bear in mind that, as an employed managing partner, you will receive a salary and possibly a share of the GmbH’s profit or turnover. You don’t then cover your personal expenditure with the company profit, but rather with the salary paid to you by the GmbH, which should be enough to cover it.

The starting point for preparing the profitability forecast is an estimation of the expected annual turnover.

The determined net profit reflects the foreseeable profitability of your business; however, since the liquidity of the company (i.e. the amount of actual financial resources obtained in a given period) is just as important as profitability, the imputed depreciation (amortisation), which is to be recorded as costs despite not creating any immediate expenditure, is to be added to the net profit.

It is from this cash flow, which banks in particular consider a crucial assessment criterion when it comes to extending credit, that you have to cover your cost of living, expenditure for investments and loan repayments. In a GmbH, however, the cost of living is already covered by your managing director’s salary and so does not have to be financed from the cash flow. At the same time, you can use cash flow to determine your individual threshold for interest payments as the maximum economically sustainable burden of interest and amortisation, and therefore also the maximum limit for debt financing:

Cash flow refers exclusively to the liquidity funds generated by the company; however, the liquidity can also be increased or secured by other means, such as loans, private contributions, interest income or other items. Since the actual operating liquidity available determines the ability to pay and fulfil your company’s payment obligations at any time, it must be planned carefully: short-term insolvency may lead to significant problems with creditors for pre-financing orders, etc., while long-term insolvency results in bankruptcy.

This aspect is frequently left to fall by the wayside – particularly when it comes to planning a business start-up. To determine the funding requirements for the start-up phase (i.e. the short-term capital requirements), you need to prepare a liquidity plan that compares the available liquid funds to the expenditures, including the amounts necessary for private lifestyles. In most cases, the available funds cannot cover the expenditure during the start-up phase, which results in a shortfall. This should be offset by an overdraft facility or capital loan from the local bank, which you can request in line with the liquidity plan.

Do not put off asking for this until you actually need it – it’s difficult to negotiate with the bank once you are actually having liquidity issues! In certain cases, alternative financing methods may also be an option to fund the start-up phase. Further information on financing can be found in the next chapter.