Investment and Financing Plan for Startups
Investment Plan
Estimating Investment Needs
Entrepreneurs must estimate the initial investment required and assess its potential offset by future income. A comprehensive investment plan details all resources necessary for operations, outlining the allocation of funds. It differentiates between investments in non-current and current assets.
Non-Current Assets
These assets and rights, vital to the production process, remain within the company for over a year.
Intangible Assets
These are non-physical assets with economic value, such as patents, licenses, trademarks, and software.
Tangible Assets
These are physical assets not intended for sale or processing, used in the company’s core operations, and with a useful life exceeding one year. Examples include premises, furniture, computers, machinery, and vehicles.
Investment Property
These properties are held for rental income or capital appreciation, not for the company’s production process.
Financial Investments
These are funds not used in production but invested for income or capital gains, held for over a year.
Current Assets
These resources are needed for short-term operational needs.
Inventories
This includes raw materials, finished goods ready for sale, and work-in-progress.
Receivables
These are amounts owed to the company by customers or debtors.
Cash
This includes money deposited in banks or held on-site for immediate access.
Calculating the investment in current assets requires considering the time lag between investment and revenue generation. This determines the funds needed to cover daily expenses until production yields profits.
Key Financial Concepts
Liquidity: Sufficient cash inflows to cover outflows.
Profitability: Revenues exceeding expenses, generating profit.
Tangible: Physical, touchable assets.
Intangible: Non-physical assets.
Appreciation: Increase in asset value.
Financing Plan
Sources of Financing
This section analyzes how the company obtains funds for investments, categorized as equity or debt financing.
Equity Financing
Primarily consists of capital contributions from the company’s owners.
Debt Financing
Involves borrowing funds from external sources.
- Loan: A lump sum provided by a financial institution, repaid with interest over a set period.
- Line of Credit: Access to funds up to a specified limit for a defined period, with interest paid on the borrowed amount.
- Leasing: Renting an asset with the option to purchase at the end of the lease term.
- Renting: Short-term rental of an asset for periodic payments.
- Grants: Financial aid that doesn’t require repayment.
Internal Financing
Retained earnings reinvested in the company (e.g., purchasing materials, machinery).
Loan vs. Line of Credit
A loan provides immediate access to the full amount, while a line of credit offers access to funds as needed, up to a limit.
Guarantee
A third party agrees to cover the debt if the borrower defaults.
Accounting Operations
- Long-term: Operations lasting more than one year.
- Short-term: Operations lasting one year or less.
Company Assets
Balance Sheet
The balance sheet represents the company’s financial position at a specific time, showing assets, liabilities, and equity.
Assets
Resources owned by the company expected to generate future economic benefits (e.g., machinery, patents, receivables, cash). Assets are categorized as non-current or current.
Liabilities
Obligations or debts owed by the company (e.g., loans, supplier debts). Liabilities are categorized as non-current (due in over a year) or current (due within a year).
Equity
The owners’ stake in the company, including contributed capital, grants, and retained earnings.
Fundamental Accounting Equation
Assets = Liabilities + Equity
Balance Sheet Structure
- Non-Current Assets: Patents, Premises, Machinery, Tools
- Current Assets: Inventories, Receivables, Cash at Banks, Cash on Hand
- Equity: Owner’s contributions, Retained Earnings
- Non-Current Liabilities: Debts due in over one year
- Current Liabilities: Debts due within one year
Working Capital
A company is considered financially stable when current assets exceed current liabilities, indicating the ability to meet short-term obligations. Working Capital = Current Assets – Current Liabilities.
Treasury Plan
Managing Cash Flows
The treasury plan tracks expected cash inflows and outflows, enabling proactive management of cash needs and surpluses.
Benefits of a Treasury Plan
- Identifies periods of potential cash shortages or surpluses.
- Informs credit needs and investment opportunities.
Treasury Status
- Deficit: Payments exceed receipts, indicating a liquidity issue.
- Surplus: Receipts exceed payments, indicating available cash.