Financial plan: accounting forecast

The financial plan calculations are often the heart of a business plan and require special attention. However, the creation of this part of the business plan is one of the biggest problems for companies. In other words: According to our experience, there is great potential for improvement here.

What should be considered when drawing up a financial plan?

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    Numbers should be logical, consistent and understandable. Assumptions about calculations should be briefly described.
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    To convince lenders or potential investors, further analyzes such as determining capital requirements, liquidity planning or scenario analysis should be able to be derived from the financial plan.
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    Value drivers – the critical parameters of your business – should be easily recognized and value-creating actions derived from them. The financial plan can also be used as a planning model.
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    The basic structural blocks of the financial plan are the balance sheet, income statement and cash flow statement.
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    Every company differs in its structure: a trading company is characterized by different value drivers than a manufacturing company or a service company. Accordingly, the financial plans are different.
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    The financial model should be as flexible as possible, yet robust, so that it can be adapted without much effort.

Our team of experts creates individualized business plans of any level of difficulty, adapted to the requirements and wishes of our customers. The above criteria are consistently taken into account in the creation. We do not work with universal templates but form the model based on the input data of our customers.

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Financial plan: further analyzes

Scenario analysis

Often there is a desire to incorporate different scenarios into planning in order to prepare appropriate countermeasures. Usually, three basic scenarios are considered: a negative (low case), a positive (high case) and a standard scenario (base case). The default scenario is the most likely.

This method takes into account various factors that affect a company’s profit and analyzes their interdependency. Potential factors to consider include: number of customers / sales, percentage of variable or fixed costs, level of investment required, taxes, etc. Such an analysis is relatively complex, and it is not always necessary to analyze all of the factors mentioned. For this reason, often only the influence of a change to the number of customers or sales value is analyzed.

Sensitivity analysis

The sensitivity analysis generally shows what effects changes in input data have on the final result. This analysis shows how sensitive a system is to changes.

This analysis determines which factors have a greater impact on the company’s profitability, and which have less. The greater the range of variation of the parameters of the analyzed factors, for which the return remains positive, the more sustainable the company or project. The following factors are among those that can be considered as variable inputs: sales volume, unit price, investment, operating costs, payment periods, loan interest, discounts, etc.

One of the weakness of this analysis is that it only looks at a change in selected factors. At the same time, this change can lead to a change of other factors, which are no longer considered in the analysis. In addition, this method does not show the likelihood of changes to key factors, or their combination.

Break-even analysis

The break-even analysis shows how many products have to be produced and sold (or services sold) in order not to generate any loss or profit after deducting all costs. This is a central tool for corporate planning.

A set of the following factors are analyzed: sales volume, price, variable, and fixed costs. The break-even analysis assumes that three of the four factors listed above are given and the value for the fourth factor is calculated. This analysis gives the company an answer to the question of what quantities of goods/services should be sold, and at what price.

Feasibility study

This shows the main influencing factors of a business idea and aims to identify “make or break” factors. For this purpose, the solution approaches are analyzed, risks identified and chance of success is assessed.

There is a close connection between the feasibility study and the risk analysis. Identified risks are taken into account in a feasibility study and, conversely, the feasibility study provides the database for realistic risk management. Read more about risk management and financial planning for uncertainty here.

Capital planning

Capital budgeting is usually undertaken when the question of a relatively large investment (a share of more than 50% in the company) arises. This procedure tests the profitability of an investment and supports objective decision-making. The most popular methods are: pay-back method, capital value method, and internal rate of return method.

Small startups that are right at the beginning of their existence should pay particular attention to this aspect. This type of company most often needs additional capital. Since the risks associated with financing startups are particularly high, these investments should be analyzed with particular care.

Capital budgeting

Capital budgeting is usually undertaken when the question of a relatively large investment (a share of more than 50% in the company) arises. This procedure tests the profitability of an investment and supports objective decision-making. The most popular methods are: pay-back method, capital value method, and internal rate of return method.

Small startups that are right at the beginning of their existence should pay particular attention to this aspect. This type of company most often needs additional capital. Since the risks associated with financing startups are particularly high, these investments should be analyzed with particular care.

Company valuation

Determination of the fair value of a company through various methods. The need for such an assessment occurs most frequently in two cases:

  • When the company is in the active development phase and investors are to be attracted to obtain additional capital for growth. You can read more about financial planning for analyzing capital requirements here.
  • The company is already quite developed, and the owners have a desire or opportunity to sell the company.

In these cases, there is often uncertainty about value and reasonable price. The fair value of a company can be determined by various methods.