Financial Planning

What is financial planning?

Financial planning (German: Finanzplanung) is the numerical forecast of a company's financial development over a defined period, usually three to five years. Its result, the financial plan, shows whether the company generates profits, whether it can meet its payment obligations at all times and when it needs how much new capital. To do so, it consists of sub-plans for income, liquidity, investments and financing. If these are linked by calculation into a planned balance sheet, this is called integrated financial planning.

First of all, financial planning is a management tool for the managing directors. It translates strategy, sales targets and headcount growth into figures. Externally, it forms part of every loan application, many grant applications and every funding round. Banks, investors and acquirers read it as the management's statement of how the company will develop and what this expectation is based on. It is documented in the business plan and in the data room.

Sub-plans of financial planning

Income planning

Income planning (planned profit and loss account) sets planned income against planned expenses and shows whether the business model generates profits. It follows the rules of the profit and loss account: revenue is recorded when the service is rendered, not when payment is received. Investments in fixed assets, that is, in items that serve the company permanently, appear there only through their depreciation. This is the acquisition cost spread over the years of use.

Liquidity planning

Liquidity planning works with receipts and payments and shows whether the company can meet its payment obligations at every point in time. Payment terms, advance payments, VAT, loan repayments and investment spending mean that income and liquidity can be far apart in individual months.

Investment planning

Investment planning records purchases of fixed assets, such as hardware, office equipment or acquired software, as well as capitalised development costs, that is, the costs of self-developed software that are recorded in the balance sheet as an asset. It supplies the payments for liquidity planning and the depreciation for income planning.

Financing planning

Financing planning determines how gaps from the other sub-plans are closed. Options include equity from a capital increase, shareholder loans, bank loans, grants or venture debt (loans designed specifically for venture-funded companies). It also contains the repayments to capital providers, that is, interest and loan repayments.

Integrated planning

Financial planning only becomes robust when the sub-plans are linked by calculation. The profit or loss of the planned profit and loss account then changes the equity in the planned balance sheet, and the closing balance of the liquidity plan appears there as liquid funds. If the planned balance sheet balances, the calculation is at least internally consistent. Technically, the planning is mapped in a financial model, usually a spreadsheet.

Planning horizon: short-, medium- and long-term financial planning

By period, a distinction is made between short-term financial planning of up to one year, medium-term planning of up to about five years and long-term planning; there are no fixed limits. Long-term planning is often called strategic financial planning, because it derives the capital requirement in rough annual values from strategy and growth targets.

For the medium-term planning that banks and investors want to see, a two-part split is usual. The first twelve to 18 months are planned monthly, because liquidity bottlenecks, hiring dates and seasonal fluctuations must become visible in this period. For the following years, quarterly or annual values are sufficient; investors in growth financings generally expect at least three years.

The budget is derived from the planning for the coming financial year: the binding target for revenue, costs and investments with defined responsibilities (budgeting). In the current year, a projection (forecast) combines the actual values up to the reporting date with the current expectation for the remaining months. The basis of every update is the monthly budget-vs-actual comparison, which shows deviations from the plan and their causes. The financial plan itself is usually only redrawn annually or before a funding round.

Assumptions, drivers and scenarios

The quality of financial planning depends on its assumptions, not on the number of its rows. A driver-based structure has proved its worth: every planned figure follows from a few measurable influencing factors (drivers). Revenue results, for example, from the number of customers, price and churn, and personnel costs from the headcount plan.

Assumptions belong in a separate area of the model and are briefly justified, for example with actual values from the past or signed contracts. Scenarios show how sensitively the result reacts to the most important drivers. A base case, a cautious case and an optimistic case are usual. The cautious case shows how long the available liquidity lasts if revenue comes in later than planned.

Legal framework of financial planning

The German Limited Liability Companies Act (GmbHG) does not prescribe financial planning as a separate document, but indirectly it is nevertheless indispensable. Under Section 1 of the German Act on the Stabilisation and Restructuring Framework for Businesses (StaRUG), managing directors must continuously monitor developments that could endanger the continued existence of the company. Over-indebtedness exists when the assets no longer cover the debts. When assessing it, Section 19(2) of the German Insolvency Code (InsO) requires a forecast of whether continuation over the next twelve months is more likely than not. Neither can be assessed reliably without planning.

The annual financial statements also draw on the planning. They may be prepared on a going-concern basis only if no circumstances such as foreseeable insolvency stand in the way (Section 252(1) no. 2 of the German Commercial Code, HGB). Auditors and banks base their assessment of this on the current financial plan.

Financial planning in funding rounds, due diligence and valuation

In a funding round, financial planning is the basis of the round size. It shows how much capital the company needs to reach certain milestones and how long the funds last (runway). A round is often sized so that it carries the company for 18 to 24 months and includes a buffer for delays. Investors compare the planning with the actual figures of the past: a company that has come close to achieving its own plans of previous years also appears more credible with new assumptions.

In due diligence, the detailed review before a contract is signed, investors and acquirers check whether the planning is arithmetically correct and derivable from the past. For company valuation, it is the starting point: the discounted cash flow (DCF) method discounts the planned cash surpluses to their present value, while multiple-based valuations often rely on planned revenue. In a company sale, the planning is read particularly critically, because every overly optimistic assumption affects the purchase price.

Worked example: deriving the capital requirement from financial planning

Formula: Financing requirement = cash outflow in the planning period - liquid funds at the start + minimum liquidity

A software company is preparing a funding round and plans the next 24 months. The planned profit and loss account shows a combined shortfall of EUR 3.0 million for both years, which includes depreciation of EUR 0.4 million. Longer payment terms for new large customers increase receivables by EUR 0.6 million. Investments of EUR 0.8 million and repayments of a bank loan of EUR 0.3 million are planned. At the start, liquid funds of EUR 1.0 million are available, and at the end a minimum liquidity of EUR 0.8 million is to remain. Income taxes are not included because of the losses.

• Planned result: minus EUR 3.0 million
• Depreciation is an expense without a payment and is added back: minus 3.0 plus 0.4 = minus EUR 2.6 million
• The increase in receivables ties up liquidity: minus 2.6 minus 0.6 = minus EUR 3.2 million operating cash flow, that is, cash outflow from ongoing business
• Investments: minus 3.2 minus 0.8 = minus EUR 4.0 million
• Loan repayments: minus 4.0 minus 0.3 = minus EUR 4.3 million cash outflow in the planning period
• Liquid funds at the end without new financing: 1.0 minus 4.3 = minus EUR 3.3 million
• Financing requirement including minimum liquidity: 3.3 plus 0.8 = EUR 4.1 million

Anyone who derives the capital requirement from the planned result alone arrives at EUR 3.0 million and is EUR 1.1 million too low. However, the calculation shows only the position at the end of the period. If the lowest liquidity level falls within the period, for example because of seasonal receipts, this low point determines the round size; it becomes visible only in the monthly planning.

Distinction: financial planning, integrated planning and financial model

• Integrated financial planning: the closed form in which the planned profit and loss account, the planned balance sheet and the liquidity plan are linked by calculation. Financial planning is the umbrella term, including for simpler planning without a planned balance sheet.
• Financial model: the calculation framework in which financial planning is mapped, often supplemented by valuation, capital structure and scenario evaluation. Financial planning denotes content and process, the financial model the tool.
• Liquidity planning: a short-term sub-plan of financial planning that relates only to cash flows, often maintained weekly or monthly.
• Financial planning of the public sector: the five-year financial planning of the federal government and the Länder (Section 50 of the German Budgetary Principles Act, HGrG), often called medium-term financial planning. It plans state expenditure and its funding, not the income and liquidity of a company.

Common mistakes

• Only the result planned. A planned profit and loss account without a liquidity calculation shows neither the capital requirement nor the point at which the available funds run out.
• Payment terms and VAT neglected. Anyone who treats revenue as paid immediately and does not show VAT in the correct period plans with liquidity that is never there at any point in time.
• Revenue without derivation. Growth rates that are not derived from sales capacity, number of customers or price do not withstand review by investors.
• Incomplete personnel costs. Employer social security contributions, the time until a position is filled, recruiting costs and equipment are often missing and lead to a cost base that is too low.
• No budget-vs-actual comparison. Planning that is not reconciled monthly with the actual figures loses its value as a management tool after a few months.

Frequently asked questions

Is financial planning required by law for a GmbH?

Not as a separate document. Without planning, however, neither early crisis detection nor the going-concern forecast can be fulfilled; banks, funding institutions and investors require it anyway.

Who prepares the financial planning?

Responsibility lies with the management. The planning is prepared by the finance department or a chief financial officer (CFO), in smaller companies often with external support. The tax adviser supplies the actual figures but does not usually prepare the planning.

Is there a template for financial planning in Excel?

Yes. Free Excel templates are offered, for example, by chambers of industry and commerce and banks; for a loan application they are often sufficient. Investors, by contrast, expect a calculation model that maps the drivers of the company's own business model: assumptions, headcount and revenue plan, planned profit and loss account, monthly liquidity planning and a planned balance sheet that balances.

How precise does planning have to be for investors?

Comprehensible, not pinpoint. Investors do not expect every figure to materialise, but that every assumption is justified and that the planning can be quickly recalculated for changed assumptions.

How are taxes taken into account in financial planning?

With the company's actual burden. For a GmbH these are corporation tax, the solidarity surcharge and trade tax, the amount of which depends on the municipality's multiplier (income tax). The corporation tax rate is 15% (as of 2026); a reduction from 2028 by one percentage point a year down to 10% in 2032 has been decided. Planning beyond 2027 reflects these steps. Loss carry-forwards, that is, losses of earlier years not yet offset, reduce the tax of the first profitable years. Advance payments and subsequent payments belong in liquidity planning at the time they are paid.

The Roemer Capital view

As part of our fractional CFO services, we prepare financial model, planning and reporting so that they answer the questions investors will ask in the round. Our minimum standard is integrated planning over at least three years with a base case, a cautious case and an optimistic case, whose assumptions sit in a separate area and can be changed individually.

Before a process starts, we check liquidity first. A funding round usually takes six to eight months; at the start of the process, the runway should therefore still be 12 to 18 months. If it is not enough, the company negotiates under time pressure, and investors read this situation out of the planning just as we do.