The financial plan is a crucial element of business planning, especially if you want to convince investors or creditors of your business idea. However, there are certain essential criteria that a good financial plan should fulfill in order to be convincing and address all potential financial risks:

A good financial plan is understandable. It should be clear and easy to understand at first glance, even for external observers. A financial plan is not “high mathematics” that only the author understands. The more complicated the plan is, the less interest potential investors will show. Ideally, it should be possible to understand within 1-2 minutes how the plan is structured and whether the planned business can be profitable. If you fail here, this could mean the failure of the entire business plan.

To test the comprehensibility of your financial plan, you should open it again about a week after you have created it. If you can still understand the origin and meaning of every single figure, you are on the right track. However, if you are no longer able to understand your own financial plan after a certain period of time, this is a clear sign that there is a problem with the “comprehensibility” of your plan.

A good financial plan is dynamic. This means that it can change quickly over time and allows the owner and potential investors to simulate different scenarios quickly and without major adjustments. This is only possible with the help of specialized software such as Excel. Only a dynamic financial plan can become an extremely effective tool for the entrepreneur who needs to react quickly to changes in business planning. It is extremely time-consuming to create a completely new financial plan every time just one or two components change.

A good financial plan is realistic. An annual doubling of turnover, too high profit margin or too low personnel costs are signs that your financial plan is most likely unrealistic. An overly optimistic presentation in the figures can lead to many additional questions from investors. You should be prepared to defend your financial plan. Especially when planning sales prices and turnover, many budding entrepreneurs encounter difficulties in justifying the figures plausibly. Figures based on “gut feeling” should be avoided, as investors should be able to trust the sources of information in your financial plan. Use the industry-standard figures that can be found on specialized websites or conduct your own local market research.

The entrepreneur’s personal situation should also be presented in the financial plan to show that you can make a good living from your business in the future. Knowing the future tax burden is also essential for any budding entrepreneur. Also show that you have thought about all possible expenses and are prepared for all eventualities.

If your financial plan meets the above criteria, you can be pretty sure that you will have a good chance with potential investors. For inspiration, you can download my template for a financial plan for a sole entrepreneur here.

If you need support in drawing up your business plan including a financial plan, contact me now!