The 3-year financing plan: the key to a long-lasting business

How to long-term plan for your French company

Having a solid financial structure is a sign of long-term sustainability for a new company. The more stable a company’s financial reserve is, the better it will fare against the unexpected.

The point of the 3-year financing plan is to anticipate the activity of the company over the three years that follow its creation. As such, it will prove invaluable in order to figure out just how your company will be financed, taking into account realistic growth assumptions.
Be careful, however! The 3-year financing plan is nothing more than an estimate based on certain hypotheses. In truth, it is rare for this plan to represent the reality.


Summary

  1. What does a 3-year Financing Plan look like?
  2. How does one go about making it?
  3. A template for a 3-year Financing Plan

 

What does a 3-year Financing Plan look like?

Just like the initial funding plan, there are two parts to it.

The first part should present all of the company’s sustainable needs for each year.
In the second part, all of the sustainable resources of the company should appear.

Keep in mind that this 3-year Financing Plan is of great use to the investors. After all, it allows them to see exactly how much the company will need in order to invest and keep its activity going.

 

How does one go about making a 3-year Financing Plan?

There are two steps to building it: examining the first year, and examining the two following years.

Year 1:

“Needs” column:

  1. Look back at the contents of your initial financing plan.
  2. Write down the amount of capital that has to be paid back in the first year. Make sure you don’t include the interests: these don’t appear in the financial plan, but on the income statement.
  3. For sole proprietorships: indicate how much the owner will levy as remuneration.

The reason why the case of the sole proprietorship is so peculiar is that his remuneration directly corresponds to the benefits of the company. However, the calculation of the Cash Flow includes the revenue of the owner. As such, the revenue of the owner has to appear in the “needs” column.

“Resources” column:

  • look back at the contents of the initial financing plan
  • write down the volume of the Cash Flow, which, for new companies, is calculated in the following manner:

Cash Flow = profits after taxes + depreciation charge

 

Note: Bankers usually say that, for the first year, the resources should be higher than the needs by at least 15 to 20% of the volume of the Cash Flow, and that this surplus should increase in the following years.

Years 2 and 3

You should only take into account the new elements that appeared in the needs or the sustainable resources for each year.

“Needs” column:

  • Write down the volume of investments that may seem necessary for the development of the company. This can be new equipment, new vehicles, etc.
  • Indicate the increase in WCR (working capital requirement) caused by an increase in the volume of activity (more stock, more customers).
  • Write down the annual repayment of the loans: just like for the first year, only the repaid capital is written down, not the interests.
  • For sole proprietorships: indicate the levies of the operator which will be carried out in years 2 and 3.
  • For Limited Liability Companies, you should remember to include the remuneration of the shareholders in the form of dividends.

“Resources” column:

  • Note down any planned increase in capital, especially for fast-growing companies such as startups.
  • Indicate how much the partners are expected to contribute in the “current accounts of associates” category
  • Write down the payment of premiums and grants
  • Write down the volume of the Cash Flow resulting from years 2 and 3,
  • Write down the volume of loans, whether they come from banks or elsewhere

You should take note of the following: when a bank loan is required, the banker usually demands that the current accounts of associates are blocked for the entire duration of the loan, in order to make sure that the financial structure of the company remains solid.

A template for your 3-year financing plan

Sustainable needsNN + 1N + 2Sustainable resourcesNN + 1N + 2
– Investment program (devoid of taxes)

 

– WCR

 

-Increase in the WCR

 

– Annual repayment of loans

 

–  Levies of the owner (in the case of sole proprietorship)

 

Dividends distributed (in the case of LLCs)

Own funds

(Personal contribution or Share capital)

 

Current accounts of associates

 

Premiums – grants

 

Cash flow

 

Medium or long-term bank loans

Surplus