What is the financial plan? What is it used for? How to do it? What is the difference between an initial financial plan and a 3-year financial plan?

Find the answer to all these questions as well as examples and models in this article dedicated to the financial plan.

Definition and use of the financial plan

The financial plan, also called the use-resources table, is a summary table presenting the needs and sources of financial of a company.

The purpose of the financial projections for startup is to check the balance of the company’s financial and to detail the nature of its sources and uses.

Initial financial plan

Mainly used during the creation of a business or a major investment, the initial financial plan allows the entrepreneur to quantify his initial financial need and the banker to quickly identify the nature of the main expenditure items in order to ” associate it with appropriate financial (permanent need or working capital requirement ).

The initial financial plan is in the form of a 2-column table listing the financial resources of the company and their uses (hence its name of use-resources table).

In terms of jobs, we find the following categories:

Investments: mainly equipment expenses with a long lifespan ( fixed assets in accounting jargon), which may thus be the subject for all or part of bank finances over a period corresponding to the lifespan of the equipment.

Stocks: stocks of raw materials or finished products that can also be the subject of specific short-term finances.

VAT: some banks offer very short-term financial for VAT

Other expenses: the rest of the expenses to be financed that cannot be the subject of specific financial

Cash: the starting cash of the business

And on the resource side:

  • Share capital: the company’s permanent capital contributed by shareholders
  • Shareholders’ current accounts: temporary capital advanced to the company by shareholders
  • Grants: investment grants (long term)
  • Bank loans: financial provided by banks
  • Supplier deadlines: payment terms granted by your suppliers

Thus, on the employment side, the emphasis is on the nature of the needs to be financed to ensure the sustainability of the financing provided to them.

The concept of finance is that long-term investments are financed by long-term funds (capital or long enough jobs). For, e.g., if the acquisition of a distribution truck for 5 years was funded by a 3-month loan, after 3 months, the business might have financial problems if it did not have the cash needed to repay the loan and if it could not find new financial means. The 5-year loan financial truck prevents this issue.

While on the resource side, the emphasis is on the source of funding: shareholders or banks. This allows the bank to ensure that the distribution of financial risk is not unfavorable to it. That is to say that the shareholders contribute enough to the financial to be encouraged to ensure the good management of the company. For the bank, shareholders must also be something to lose.

3-year financial plan

The 3-year financial strategy is a strategic process aimed at checking the company’s financial performance for the next three years, forecasting any internal financial deficits, and them with foreign financial capital.

The weakness of the 3-year financial plan is that it relies on Self- financial Capacity or CAF. The CAF is a very French and purely theoretical concept: it represents the cash flow theoretically cashable by the company.

In practice, we prefer a cash flow forecast. The cash flow table presents the same information as a 3-year financial plan but is based on a forecast cash flow (very concrete) and not a theoretically cashable cash flow (too abstract).