Financial planning is crucial for new entrepreneurs. In fact, the financial requirements and sources of funding are two aspects which are closely related, and often represent a major obstacle to the realization of a business idea.
The financial planning addresses issues related to corporate finance, i.e. the money that is needed to kick-start a business or to start a new investment.
Especially start-ups need money to finance their location, the purchase of fixed assets, the purchase of raw materials, to hire staff, for the financing of any promotional activities and for other costs.
The choice of the financing form to cover the company's needs can not be left to chance, but has to be "studied" carefully by the founders themselves. At early stage, the choice of the financing form will be crucial for entrepreneurs, as they will correctly determine just how much money they need in order to start their business.
Too often aspiring entrepreneurs tend to estimate only a financial need, without calculating whether the sum is exactly the one required or not. Especially, they do not calculate how much of that amount is used to finance investments in fixed assets (plant, machinery, equipment, buildings, etc.), and how much serves to finance the operating costs (employment, utilities, advertising, rent, consulting, insurance and other ).
For this reason, the penultimate part of our "TAKE OFF!" framework regards the calculation of the financial needs and represents one of the biggest challenges for many of our founders. To perform a clean financial planning, we suggest you to follow the six-step process:
- First, you have to create the income statement. Start with the projection of your revenues and estimate the expected revenues from the sale of your products or services.
- Afterwards, you have to consider the costs and try to quantify them with monetary values - some costs (e.g. depreciation or interest expense) can not yet be quantified at this early stage.
- The capital requirement indicates the costs, the investments (including depreciation) and the liquidity needed to achieve the planned revenues.
- Once you are aware of how many resources you need, you'll have to see how to finance your business, whether through equity or through borrowed capital. THis decision will determine if there are any interest or dividend payments that will be needed to complete the income statement.
- The liquidity planning is particularly important in relation to the numerous braches of many companies in the first years of activity. It can be derived from the income statement.
- The establishement of the initial financial statements and one at the end of the first year will complete your financial plan.
If you want to verify your financial planning with our experts from STARTUPS.IT, do not hesitate to arrange an appointment!