Investment budget and business plan
Setting up your business involves completing a number of formalities and filling in a lot of documents. Therefore, few entrepreneurs, when preparing to open their own company, decide to create a business plan or investment budget, considering it unnecessary paperwork, especially since in the case of a sole proprietorship or a small company without initial capital, there is no such obligation. On the other hand, the preparation of such documents can be very useful when developing your business, not to mention the moment when we want to transform our modest company into an advanced company. The analysis of the company, financial data and a real plan of its development are necessary when applying for a subsidy or a loan, because nothing will appeal to the bank or institution granting the subsidy, like a tangible and tangible business plan. So let's find out how to build a business plan and investment budget, how to update them so that they become a helpful tool in the company's development.
How is a business plan different from an investment budget?
A business plan is an economic plan for the development of a company or other undertaking.On the other hand, the investment budget is a statement of revenues and expenses of an enterprise or other organizational unit, provided for a specific period of time. Both documents concern the company's finances, describe their current condition and financial forecasts for the next period, including the possible and desired financial plan.
A business plan describes a much broader spectrum of activities than the investment budget. In addition to the budget, the business plan includes market analyzes that take into account possible development factors for the business, as well as those that may inhibit its growth. In addition, the business plan contains information about customers, contractors, suppliers, competition analysis and the most important thing, i.e. a detailed description of the company's development plans, both short-term and long-term. A good business plan will also include the company's history with a description of activities so far and conclusions drawn after their implementation.
The investment budget relates only to the company's finances, describes their real value and is based on facts and accurate calculations. The budget contains data on the company's revenues and expenses and information on how much of the company's assets can be spent on investments. The budget assumptions also include possible deviations from the assumed plan.
Creating both a business plan and an investment budget is not mandatory for small businesses, but can be useful at a later stage in their operation. Banks and potential investors usually require a business plan as a document that accurately describes the company and its capabilities. However, it must not be forgotten that the business plan must also include a well-prepared budget.
Creation of the company's investment budget
A properly prepared investment budget must be based on a thorough financial analysis, taking into account the company's balance sheet, summaries from financial books and financial statements. Its most important point is the finances themselves, divided into revenues and costs of the company. It will be good practice to break down both costs and revenues into smaller groups.
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In small enterprises, the costs include expenses for salaries for employees, telecommunications services or the purchase of materials necessary for production. In the case of revenues, the matter becomes more complicated because some purchases do not directly generate any revenues, but are necessary for the functioning of the company. Therefore, revenues can be divided either according to the type of services or goods or according to the target group. In the case of larger enterprises, the matter is a bit simpler, because you simply create small budgets for individual departments, which, when put together, will give the full budget of the entire company.
When the analysis of revenues and costs is ready, it is possible to determine whether the company has any financial surplus and what is its amount. Additionally, it will be possible to see where costs can or should be cut, and in which it is worth investing more. This is where the investment part of the budget begins. Specialists advise to divide the company's development plans into a pragmatic plan and assumptions above that. Pragmatic activities are things related only to the basic scope of the company's activity, which are to bring a constant profit and keep the company on the market, while the plan also describes everything that the company would like to implement in addition to its basic activity and what is used for its development. Knowing the assumptions of both plans, you will be able to find the right proportion that will allow for proper operation on a daily basis and at the same time enable the company to develop.
A business plan, i.e. planning the future of your company
Preparing a business plan requires much more time and work than an investment budget. In addition to collecting information about the company itself, you should also collect data about its environment. It is good to start with a market analysis that describes its structure and behavior, including target groups, customers, suppliers, competition, market size and opportunities for its expansion, etc. It is also worth carrying out an analysis of external factors (PEST analysis) taking into account economic, political and technological factors and the socio-environmental issues that can have an impact on running a business.
After completing the market analysis, you should focus on the internal analysis of the company and think about the stages of its creation and plans for each of them, and what achievements can be boasted. You should also describe the current situation of the company, taking into account data such as the number of people employed or the production volume. The more detailed information is included in the business plan, the easier it will be for a potential investor to get acquainted with the company's profile and development opportunities. Then the investment budget is attached to the business plan and a short summary is made based on all the analyzes. It is worth spending more time on it, as such a summary is extremely important. Most potential investors do not have time to read every multi-page business plan, so they base their decisions on this short description.
