Integrated Financial Planning

What is integrated financial planning?

Integrated financial planning is a form of corporate planning in which the planned income statement (profit and loss account), the planned balance sheet and the planned cash flow statement (liquidity plan) are linked to one another arithmetically. The planned income statement shows the planned profit or loss, the planned balance sheet the assets and liabilities at period end, the liquidity plan the cash receipts and payments. Every assumption thereby acts simultaneously on earnings, assets, debts and cash. Because the planned balance sheet must balance in every period, the plan checks itself. Also in use is the term three-component planning (Drei-Komponenten-Planung); in English it is called integrated financial planning or, for the calculation model, a three-statement model.

A technical drawing works no differently: front view, side view and plan view show the same workpiece. If a dimension in one view does not fit the other two, there is an error somewhere.

An integrated plan is demanded by banks for larger credit decisions, by investors in funding rounds and in every situation in which the continuation of the company is to be assessed. It is prepared by the finance function, in smaller companies often with the support of an external CFO. The starting point is the last actual balance sheet, ideally from a current monthly closing. Within financial planning, the umbrella term for any planning of financial figures, it is the closed form in which all three calculation components are connected.

The three component plans of integrated financial planning

The planned income statement and planned balance sheet follow the structure of the annual financial statements. The liquidity plan additionally shows the cash balance and, like a cash flow statement, is structured by operating activities, investments and financing. The linkage follows fixed rules:

• Result and equity: Profit (net income for the year) increases, loss (net loss for the year) reduces equity in the planned balance sheet.
• Payment terms, receivables and payables: A sale is income at once but affects liquidity only on receipt of payment. Outstanding amounts appear as receivables on the balance sheet. Conversely, payables to suppliers arise.
• Investments and depreciation: The purchase price flows out at once, enters the balance sheet as fixed assets and becomes an expense over the useful life as depreciation.
• Financing, interest and repayment: A loan increases cash and liabilities. Interest is an expense. Repayment, by contrast, reduces only cash and liability and does not touch the income statement.
• Provisions and taxes: Provisions are amounts for obligations whose amount or timing is not yet exactly known. The expense is recognised before payment is made, for example for bonuses, closing costs or income taxes. Payment follows in a later period.
• Value added tax: For the company it is, as a rule, a pass-through item. The company collects it with customer payments and remits it to the tax office, reduced by input tax on its own purchases. Until then it is at the company's disposal but does not belong to it. It does not appear in the income statement, but does appear in the liquidity plan and, as a receivable or liability towards the tax office, in the balance sheet.

Two checks close the circle: total assets (Aktiva) and total equity and liabilities (Passiva) must be equal in amount. The cash balance of the planned balance sheet must equal the closing balance of the liquidity plan. If either deviates, a payment flow or an entry is missing.

Direct and indirect derivation of liquidity

The liquidity plan can be derived directly from planned receipts and payments or indirectly from the result. The indirect method starts with the result and adds back expenses that trigger no payment, for example depreciation. It then takes account of the change in working capital (the capital tied up in the ongoing business, above all receivables and inventories less supplier payables) and adds investments and financing. In multi-year plans the indirect method is common, for short-term weekly planning the direct one. Both must lead to the same closing balance.

Why isolated liquidity planning is not enough

Many companies plan their liquidity as a list of expected receipts and expenditures. Such a calculation regularly overlooks items that become visible only in the linkage with balance sheet and income statement. These include the VAT payable and the timing offset of input tax, the build-up of receivables as revenue grows, payments from provisions, additional tax payments and scheduled repayments. Above all, it lacks the development of equity.

Equity in particular is critical in growth companies. A company can remain liquid thanks to a loan while accumulated losses consume the equity. If losses exceed equity, the balance sheet shows a deficit not covered by equity (Section 268(3) of the German Commercial Code, Handelsgesetzbuch, HGB), balance-sheet over-indebtedness. It is not yet over-indebtedness in the insolvency-law sense but gives reason to examine the situation under Section 19 of the German Insolvency Code (Insolvenzordnung, InsO). As soon as half of the share capital, the capital of the GmbH (German limited liability company) fixed in its articles of association, is lost, the management must convene a shareholders' meeting without delay (Section 49(3) of the German Limited Liability Companies Act, GmbHG). Both thresholds become visible in good time only if a planned balance sheet is kept.

Requirements of banks, investors and insolvency law

With the plan, banks examine above all debt service capacity, that is, whether interest and repayment can be served from running cash flow. Financial ratios in credit agreements (covenants) can be calculated in advance only with a planned balance sheet. Examples are the equity ratio and the dynamic leverage, that is, net financial debt in relation to earnings before interest, taxes, depreciation and amortisation (EBITDA). Investors read from the plan what the new capital is used for, how long the funds last (runway) and when the next financing becomes necessary.

In insolvency law, over-indebtedness exists when assets do not cover liabilities and continuation of the business over the next twelve months is not predominantly probable (Section 19(2) InsO). In advisory practice, a reliable going-concern forecast is regularly expected to rest on an integrated plan that shows the ability to pay over the forecast period. Standard IDW S 16, published in 2025 by the Institute of Public Auditors in Germany (Institut der Wirtschaftsprüfer, IDW), on early crisis detection under Section 1 of the German Act on Stabilisation and Restructuring Framework for Businesses (Unternehmensstabilisierungs- und -restrukturierungsgesetz, StaRUG), likewise builds on an integrated plan. In the annual financial statements too, measurement on the assumption that the company continues as a going concern (Section 252(1) No. 2 HGB) is permissible only as long as no actual or legal circumstances stand in the way. Management and auditors assess this on the basis of the plan (early crisis detection).

Worked example: integrated financial planning over one financial year

A company starts on 1 January with EUR 500,000 in bank balances and the same amount of equity; there are no other balance sheet items. Planned revenue is EUR 1,200,000, evenly EUR 100,000 per month with a payment term of 30 days. Running expenses of EUR 1,300,000 are paid in the same month. In January EUR 150,000 is invested; the useful life is three years. For simplicity, VAT and income taxes are disregarded.

1. Depreciation: EUR 150,000 divided by three years = EUR 50,000.
2. Planned income statement: revenue 1,200,000 minus running expenses 1,300,000 minus depreciation 50,000 = net loss for the year of EUR 150,000.
3. Receivables on 31 December: The December revenue of EUR 100,000 is still outstanding. Received are 1,200,000 minus 100,000 = EUR 1,100,000.
4. Liquidity plan, direct: 500,000 plus 1,100,000 minus 1,300,000 minus 150,000 = EUR 150,000 closing balance.
5. Liquidity plan, indirect: result minus 150,000 plus depreciation 50,000 minus increase in receivables 100,000 minus investment 150,000 = minus EUR 350,000; 500,000 minus 350,000 = EUR 150,000.
6. Planned balance sheet on 31 December, assets: fixed assets 150,000 minus 50,000 = EUR 100,000, receivables EUR 100,000, cash EUR 150,000, together EUR 350,000.
7. Planned balance sheet on 31 December, equity and liabilities: equity 500,000 minus 150,000 = EUR 350,000.

The balance sheet balances, and the cash balance equals the closing balance of the liquidity plan. The loss is EUR 150,000, but cash falls by EUR 350,000. The difference of EUR 200,000 sits in receivables and fixed assets. A pure earnings plan would have underestimated the liquidity requirement in this example by exactly this amount. If revenue grows in the following year, receivables rise further and tie up additional funds. With VAT, the receivables would stand gross in the balance sheet, and a payable to the tax office would be added.

Distinction: integrated planning, financial model and liquidity planning

• Financial model: the calculation model for financing, valuation or a transaction, usually multi-year and with scenarios. A good financial model is integrated, but not every integrated plan is prepared for a transaction.
• Liquidity planning: a component plan for receipts and payments, often short-term in weeks. In integrated planning, the payments part results from income statement and balance sheet; operational liquidity planning refines it to individual weeks and payments.
• Cash flow projection: the multi-year forecast of cash flows, as a rule as part of an integrated plan in the financial model. It measures the capital requirement and is the basis of valuation under the discounted cash flow method. Simplified versions without a planned balance sheet exist but cannot be checked arithmetically.
• Budgeting: the drawing up of the binding annual plan, often only at the level of income statement and cost centres. Integrated planning adds balance sheet and liquidity and usually extends over several years.

Common mistakes

• Balancing item instead of reconciliation. A difference line that closes the balance sheet arithmetically hides missing cash flows and takes away the integration's control function.
• Payment terms not modelled. Anyone who equates revenue with receipt of payment systematically overestimates the liquidity of a growing company.
• Investments and repayments wrongly allocated. Planning investments as running expense or repayments as costs distorts result and equity at the same time.
• Opening balance sheet estimated. If the plan does not begin with a reconciled actual balance sheet, every initial error carries through all plan years.
• Annual figures only. In the first plan year monthly values are necessary, because bottlenecks arise within the year even when the balance at year end is sufficient.

Frequently asked questions

Does every company need integrated financial planning?

Not every one, but every one that takes on debt capital, seeks investors or finances losses over several years. In these situations credit decisions, valuation and the assessment of continuation depend on balance sheet and liquidity, not on the result alone.

Over what period is integrated planning done?

Often over three to five years. The first year is planned in months, the following years in quarters or years. For a going-concern forecast, the plan must cover at least the twelve months over which over-indebtedness is assessed (Section 19(2) InsO). For the examination of imminent illiquidity it is as a rule 24 months (Section 18(2) InsO).

Can the tax adviser prepare an integrated plan?

Technically yes, many firms offer planning calculations. The assumptions on sales, staff and investments must, however, be supplied and owned by the company. Without them the plan remains an extrapolation of the past.

How is integrated financial planning built in Excel?

With separate worksheets for assumptions, planned income statement, planned balance sheet and liquidity plan, linked by formulas. Inputs such as prices, customer numbers, salaries and payment terms stand only on the assumptions sheet; all other values are calculated. Two check rows show in every period whether the balance sheet balances and whether cash matches the liquidity plan.

A typical hurdle is the circular reference: interest depends on the cash balance, and the cash balance in turn on interest. Interest is therefore often calculated on the opening balance of the period. Freely available templates often contain only income and liquidity planning without a planned balance sheet and are therefore not integrated.

The Roemer Capital view

When we support companies as a fractional CFO, integrated planning is the starting point of all further work. In Roemer Capital OS, clients see income statement, balance sheet and liquidity as one connected plan whose parts agree arithmetically.

For funding rounds we build the financial model on this: at least three years, with a base case, a cautious case and an optimistic case. Investors also see in it how equity develops up to the next round. We coordinate tax assumptions, for example on loss carry-forwards, that is, not yet offset losses of earlier years, with the company's tax adviser.