Creating a 5-year financial plan for a startup (essential for attracting investment)

DY Management Research Institute

(Director Ryu Dae-young, Ph.D. in Business Administration/Business Consultant (Finance))

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Companies usually establish mid- to long-term plans. Especially for new startups or startups, establishing mid- to long-term financial plans is essential to establish a vision for future growth.

If you are a new startup, you should do this before starting your business so that you can make an accurate decision on whether or not to go ahead with the business.

If you are an existing company or business unit, you can create these mid- to long-term plans and use them to establish future growth goals.

※ The mid- to long-term financial plan is established in the following manner.

(Explains from sales plan to operating profit.)

- A product-specific quantity plan is established for each mid- to long-term year. (In the case of startups, it is common for sales to increase.) If there are various products, it is better to group them into product groups and establish them by product group.

- A unit price plan is established by year, and a sales plan is established accordingly.

- Establish a cost plan. Costs should be divided into manufacturing costs (cost of sales) and selling and general administrative expenses, and also divided into fixed and variable costs.

- If you establish a mid- to long-term plan, sales will increase. Variable costs will increase accordingly. Fixed costs will have to be accompanied by an increase in personnel when sales increase rapidly. Investment in tangible and intangible assets is also necessary.

- Before the fixed cost plan, establish the annual personnel/personnel cost plan. When establishing the personnel plan, you must establish it while looking at the annual sales per person indicator. It is natural that the number of personnel increases when sales increase, but the sales per person indicator should decrease. Only then can economies of scale be realized.

- Calculate the tangible and intangible investments by year. Calculate the depreciation expense by reflecting this. Since the depreciation period is different for each asset, it is better to establish the depreciation expense separately.

- Establish a fixed cost plan excluding labor and investment costs. If there are no special circumstances, you can establish it by reflecting the personnel increase rate.

- If you reflect the variable and fixed costs established above as manufacturing costs and selling, general and administrative expenses and exclude them from sales, you will get operating profit.

• Please see the figure below for more details.