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/Management Consultant (Finance))

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Companies typically establish medium to long-term plans. Particularly for new startups or startup companies, establishing medium to long-term financial plans is essential for setting up a vision for future growth.

If you're a new startup company, these tasks must be completed before starting your business to accurately determine whether to proceed with the business or not.

If you are an existing company or business division, you can establish such mid to long-term plans and use them to set future growth targets.

※ Medium to long-term financial plans are established in the following manner.

(Explains from sales plan to operating profit.)

- Medium to long-term annual volume plans are established by product. (For startups, revenue typically increases) If there are multiple products, it's better to group them by product line and establish plans for each product group.

- Unit price plans are established by year, and revenue plans are established accordingly.

- Establish a cost plan. Costs must be categorized both as manufacturing costs (cost of goods sold) and selling & administrative expenses, as well as being divided into fixed costs and variable costs.

- When you establish a mid-to-long-term plan, it will be structured to increase revenue. Variable costs should be increased accordingly. For fixed costs, if revenue grows rapidly, it must be accompanied by an increase in personnel. Additionally, investment in tangible and intangible assets is also necessary.

- Before planning fixed costs, establish annual personnel/labor cost plans. When establishing personnel plans, you must consider the annual revenue per employee indicator. While it's natural for personnel to increase as revenue grows, the revenue per employee indicator should decline. This is how economies of scale are realized.

- Calculate tangible and intangible investments by year. Reflect this to calculate depreciation expenses. Since depreciation years differ by asset type, it's better to establish them separately.

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

- By reflecting the previously established variable costs and fixed costs as manufacturing costs and selling & administrative expenses and deducting them from sales revenue, we get the operating profit.

• Please refer to the figure below for detailed information.