The importance of funding plans
In short, the Initial Funding Plan is the lifeline of your company for the first years of activity. “How will my business grow?”, “What investments should I do?”, “When should I do them?”, “Where am I going to find the budget to make them?”
The point of the Initial Funding Plan is to answer all of these questions, and as such, it’s necessary for every starting business to make one if they want to know what to do moving forward.
Summary
- Why should you make an initial funding plan?
- How should the initial funding plan be displayed?
- Are there any rules of caution to follow?
1- Why should you make an initial funding plan?
The initial funding plan allows you to make sure that you will have the necessary capital to finance all of the expenses necessary to launch your business.
This is one of the financial tables that make up the business plan. It presents the state of the company’s finances before the actual start of the activity.
What “needs” does a company have starting off?
- Investments (establishment costs, leasehold rights, equipment, etc.).
- The Working Capital Requirement (WCR), which refers to the predictable cash gap between expenses and revenue.
The WCR doesn’t come into play until your activity has already started, but you should know how it will be financed from day one. - The cash to cover unexpected events and to cover certain expenses (rent, insurance premiums, etc.) and cash advances (VAT on investments for example).
How can those “needs” be funded?
- With equity, which refers to the money that you or your associates bring to the company
- By borrowing money.
2- How should the initial funding plan be displayed?
| Initial funding plan | |
| Needs
All you need before starting your activity |
Ressources
The way to finance all of these needs |
| Investments:
– Administration fees – Patents and licenses – Right to lease – Guarantees – Right of entry (in case of franchise for example) – Buildings – Equipping the premises – Production equipment – Furniture and equipment worth> 500 euros – Vehicles – etc.
Working Capital Requirements (WCR)
Cash |
Equity:
– Personal contributions (“operating account” for individual enterprises and “capital” for companies) – Contributions made by investors (love-money, crowdfunding, business-angels …) – Current accounts of blocked partners (in case of a company) – Nonor Loans – Grants and bonuses
Funds borrowed (or “borrowed capital)
– Bank credits – Micro-credit – Current accounts of non-blocked partners (in case of a company) |
| Total: | Total: |
3- Are there any rules of caution to follow?
- The needs defined have to be fully covered by sustainable resources. The two columns of the financing plan must therefore have the same total.
If the sum of your contributions, possibly increased by a premium or a grant, remains lower than the total of your needs, you should make up the difference by using external funding. - Try not to rely too much on borrowed funds. Banks tend to be reluctant to provide long-term or medium-term loans if the volume they are asked for is higher than the volume of equity.
- Do not hesitate to reschedule or delay your project if the burden of debt is too high for your company to repay.
- Most importantly, you should always seek help when undertaking such a project. Accompanying networks and accountants will have an external and therefore neutral view of your project that will prove invaluable in the long run. They can also help you build a realistic financial forecast. This is one of the conditions for the success of a business project.
