I start by asking a lot of questions. The goal is to understand the company’s economic model- how it thinks of making money. There are many more complex models than buying and reselling a product with a margin. It is also to understand the organization and operation planned by the leader.
Once I have this information, I can build the framework of the financial plan, which will be personalized and adapted to the company’s activity. I then take the data individually, and with the knowledge I have of the action, I understand those linked together. Finally, I prepared the formulas on the Excel spreadsheet. So once I got the info, I worked on my side to prepare the board.
Once the table is prepared, I ask the client to fill it in. As I said, each person knows their sector, activity, opportunities, and forecast turnover. I’m not here to give him his turnover. It is up to the customer to plan his costs of goods, his selling price according to his market study, the necessary investment in marketing, and the rental of premises. Therefore, the manager completes the framework of the financial plan that I have prepared for him.
Once the frame fills, we redo a point together and attack the analysis part. We look at what has been completed and take a step back together to look at what it looks like overall. And if necessary, we take the data, knowing that the goal is to obtain a favorable agreement from the bank. Sometimes by changing small things, we will manage to have a big impact on the final figures.
If, for example, we cannot make a profit, we look at how to raise prices or lower certain costs. There may be investments to postpone: do you need the car immediately or wait for six months? I can pull many little levers to make the Business Plan sexier.
Once we’ve done all this work, I add a summary tab to the financial plan with a list of indicators in green or red. The idea is, therefore, to check that everything is in green.
Some will say it’s cheating to lie to get a bank loan, but the goal is to put your finger on the things that will not work. For example, if you see that putting a selling price at 15€ does not work thanks to your financial plan while putting 20€ allows you to run your business, you know what you have to do. The economic program helps people ask the right questions and anticipate certain decisions.
With some clients, we reviewed the entire economic model by asking the right questions because they would never have been able to make a living from their activity the way they had initially thought of it. As we carry out the 36-month forecast, it allows us to project ourselves and avoid unpleasant surprises.
It is a very difficult exercise because no one can read the future. Sometimes we make a forecast today and are convinced that we are as accurate as possible. But tomorrow, a lot of things can happen, and the best example with the covid. It’s completely unpredictable, and it’s going to impact the business. So a forecast we start on day one but adapt every day is certainly not fixed!
What do you recommend to ensure regular monitoring and adapt the forecast?
The tool that I propose is well decided month by month. I suggest to the manager that once he obtains the bank loan, he must continue to use his financial plan. It’s a great tool for managing the company and gaining visibility.
Therefore, I advise modifying the financial plan with the values realized over time. That is to say when a month has passed, the person enters the actual amounts instead of leaving the column with forecast values. So, for example, if I had forecast €12,000 in turnover in February and I made €13,000, I would return to my table and replace the value with €13,000. This way, all the documents will be updated automatically, giving more precision to the final results.
Gradually, the final landing result gets closer and closer to reality since part of the values have become real.
Do you recommend adding a “Done” column next to the “Planned” in the tables?
The files are already quite heavy. So what is very simple is to copy and paste your file and keep the initial version of your forecast in version 1 of the document. You then complete version 2 with the Realized like that you keep your initial plot to compare with the real thing.
Out of curiosity, how long do you take to prepare the initial frame?
It depends on the complexity of the project. In general, I try to spend between 5 and 7 days doing the first step. After that, I have to take action back go back the next day to clear my mind. I try to stick to the 1-week max to make a financial plan and move forward.
Once you have completed the financial plan, the leader goes directly to his bank with his file to negotiate his loan?
Yes, that’s exactly it. He does not necessarily come with his Excel. The idea is to print in PDF the documents requested by the bank. Often they ask for the income statement, the cash flow plan, and the forecast balance sheet. The bank will see if the figures are consistent, but it will also challenge the manager. That’s why you have to be able to justify your figures. This is where support takes on its full meaning because as I ask them many questions and we do analysis together, they are already armed when they arrive at the bank.
Even if at the time, when it’s in front of me, it’s a little annoying because I ask them to go further and dig into their figures, in reality, it’s a real preparation job in addition to their bringing a real knowledge of their activity.
The pet peeve of managers is often the VAT. It impacts the cash flow and not the income statement. Are project promoters aware that disbursement of VAT will affect their cash flow?
Very rarely. This is a point that I highlight by asking them for the prices in € excluding VAT and the VAT rates, to show them that there is 20% of cash flow that does not belong to them. It can be a little challenging to predict the balance amount depending on what you collect and what you buy, therefore deductible.
For example, if we sell a lot and the next quarter we have to pay back the VAT collected, but we have spent the cash on something else because we did not plan for it, we will find ourselves in difficulty. This is why the cash flow document is super important. In this table, I will report the estimated VAT disbursements. It will allow the manager to realize that he does not have as much money as he thinks. There is a line to show that it is money that we owe. Even if it is cash that we have in our account today, we must keep the amount needed next month or quarter to pay the State.
The VAT is calculated automatically according to the amounts entered and the variables in the frames I propose.
How do you consider payment deadlines to move from the income statement to the cash plan?
It is part of the things specific to each activity. For example, if you tell me that you want to set up an E-commerce site: you buy from a supplier, and you resell on your site. You will collect your customers right away. You receive payments from your customers in cash. On the other hand, with your supplier from whom you buy the goods, you may have a payment term of 30 or 60 days. This scenario is perfect for you because you will collect the money from the sale before paying your supplier. It is therefore taken into account in the calculation of the cash flow.
Conversely, if you sell to your customers with a payment term of 30 or 60 days, you pay your supplier in cash. You will need financial capacity and cash flow to advance this gap between purchases and receipts (the Working Capital Requirement – WCR). Depending on the payment terms, it will greatly impact cash flow and the balance sheet. For example, if you have to pay a supplier in advance, you only receive the goods 30 days after payment. Imagine that you pay him on December 15, and he delivers to you on January 15. When you end your fiscal year on December 31, the money you used to pay the supplier is not in your bank account, but on the other hand, you don’t have the goods either. In the balance sheet, you have a “supplier receivable” line to show that you have a deposit with this supplier. In addition, the balance sheet is used to make intermediate accounting lines to show that nothing has disappeared.
What is the difference between the Business Plan and the Financial Plan?
Some people associate the Business Plan only with the financial part. Others also include market research, team, competitor analysis, etc. I call the financial plan the four documents I was talking about, so it’s clear. The financial plan is part of the Business Plan and is even an important part.
What are the mistakes to avoid when making a financial plan?
I can give you concrete examples that I had. It will seem bland and obvious to you, but these are real situations when you have too much of a nose in it and don’t take a step back.
A client had given me his sales forecast. It was a classic buy-sell product model. So behind it was also necessary to forecast the purchases of goods. And when I reviewed his file, I saw that he was planning to sell many more products than he was buying. So, of course, I raised the problem with him. By filling in boxes, we do not necessarily realize the numbers.
To avoid errors, when you fill in boxes in a table, you have to ask yourself the question of the consistency of the data. For example: can I sell what I have planned for my table? Whether it is the capacity of machines, raw materials, or human resources.
Here’s another illustration of a service provider. It is impossible if he gives me a forecast where he will charge the equivalent of 50 hours a day while he is alone. He will therefore have to provide for a job. Often errors come from a lack of global vision. Do not segment the small things because everything is linked. You have to think about the impacts that each item can have.
Hence the interest of being accompanied to have someone who helps to take a step back. Usually, I try to put alerts on the boards. For example, when I had a problem with my client on inventory, I adapted the file to add an inventory line. And when the list is negative, it turns red. It allows me to give an alert to my client because he cannot have a negative inventory. So either he plans to buy more, or he sells less.
These small indicators that I put in place make it possible to ensure the consistency of the data. If the banker sees small discrepancies or small errors, it can reduce his confidence in the manager. A banker remains a human being. If you can avoid your little mistakes, you might as well do it.
What advice would you give to a leader who wants to embark on the realization of a financial plan?
The most important thing is properly planning all your receipts and disbursements and trying not to forget anything. Do not hesitate to take your bank account to go over all the lines one by one and take stock of the frequency of expenses (monthly, quarterly, half-yearly, annual). Having the most exhaustive list of entries and exits possible from the start is super important. You can even put a line on office supplies. You must be as precise as possible because each small line can impact cash flow.
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