Key points
- A funding decision and horizon before the spreadsheets
- Operating assumptions connected to financial flows
- Funding sized at the projected cash low point
- Sensitivity tests and review conditions made explicit
Start with the funding decision, not the spreadsheet
A business plan is not only a description of the company. For a CFO or finance lead, it must support a specific choice: which initiative should be funded, over what period, to reach which milestones, and how much downside can the organization absorb?
The decision file states the selected option, proposed use of funds and credible alternatives such as full commitment, staged funding, a smaller scope or postponement. This makes the requested amount traceable to the strategy and to the conditions under which it would be reviewed.
Turn operating assumptions into financial drivers
A credible forecast does not begin with an isolated growth rate. It connects units sold, price, mix, sales timing, headcount, investment, variable costs and fixed costs. Every material driver has a unit, source, owner and plausible range.
Assumptions also need to agree across functions. Faster sales may require more stock, delivery capacity, commercial spending or customer credit. The narrative and the financial statements must therefore describe the same operating scenario.
| Assumption | Financial effect | Useful control |
|---|---|---|
| Price and volume | Revenue, margin, collections | Evidence, ramp-up and seasonality |
| Customer and supplier terms | Receivables, payables, working capital, cash | Payment days by scenario |
| Capital expenditure | Assets, cash outflows, depreciation | Date, amount, useful life and milestone |
| People and capacity | Payroll and fixed costs | Hiring or commitment timetable |
Read profit, operating working capital, investment and cash together
Profit does not guarantee available cash. Sales may be collected after payroll, suppliers or stock have been paid. Capital expenditure also uses cash without passing through the period’s profit in full.
The model therefore links four views: the profit and loss forecast for earnings, operating working capital requirement for operating timing gaps, the investment plan for long-lived expenditure and the cash forecast for the actual sequence of receipts and payments. A forecast balance sheet completes the control when the scope requires it.
- Profit and loss by period
- Inventory, receivables and operating payables
- Capital expenditure and disposals
- Equity contributions, borrowings, repayments and dividends
- Cash receipts, payments and closing balance
Size the requirement at the lowest cash point
For every period t in horizon H, compare the minimum cash level with the cumulative closing cash balance before additional financing. Gross need is: maximum over t in H of [0; target minimum cash at t minus pre-financing cash at t]. Pre-financing cash includes opening cash and financing already confirmed; only the additional financing being sized is excluded.
Calculate the low point monthly, or more frequently when the cash cycle requires it, rather than from annual totals alone. Purely illustrative example: with target minimum cash of €100k and a projected low point of minus €180k, peak gross liquidity need is €280k. This is not necessarily the amount to raise or borrow: the final structure also depends on timing, confirmed resources, fees, interest, repayments and instrument constraints.
| Illustrative period | Cash before financing | Gap to €100k target |
|---|---|---|
| Month 1 | €20k | €80k |
| Month 3, low point | −€180k | €280k |
| Month 6 | −€80k | €180k |
| Month 12 | €70k | €30k |
Test what can move the amount or timing
Challenge the central requirement with credible variations: slower sales, lower margin, later customer payments, earlier investment or higher costs. Test each material assumption separately, then combine a small number of internally consistent downside conditions.
If a small change shifts the amount or timing sharply, the commitment may be staged and tied to milestones. Equity, term debt, short-term facilities, grants or internal cash should then be assessed against duration, risk, security, eligibility and the organization’s rules. Qualified financial and legal review remains necessary.
Prepare a file the committee can challenge and revisit
The decision note should show more than the final number. It sets out the selected scenario, use of funds, sensitive assumptions, cash low point, financing paths considered, risks and review conditions. Supporting calculations and sources can remain in appendices while the decision stays readable.
Innovatio Decision Suite helps structure these elements within the observable role of each module. It does not replace accounting validation, lender assessment or human approval of the funding decision.
- Amount, timing and use of funds
- Key assumptions and evidence
- Central and downside scenarios
- Cash low point and minimum cash policy
- Milestones, risks and next review condition
Workspaces relevant to this question
Each link states the role of the workspace. Connections rely only on supported shared objects and demonstrated exchanges for the decision file.
Frequently asked questions
What is the difference between profit, profitability and a funding requirement?
Profit is an absolute gain or loss. Profitability generally relates profit to revenue, assets or equity. Peak gross liquidity need depends on when cash is received and paid, capital expenditure, financing flows and changes in operating working capital.
How should operating working capital be included?
Project inventory, receivables and supplier payables from the scenario’s volumes and payment terms, then carry their changes into the cash forecast.
Should the business plan show only one scenario?
No. The central case should be accompanied by sensitivity tests and at least one coherent downside case showing what moves the cash low point.
Does Innovatio choose the source of funding?
No. The Suite structures assumptions, calculations and scenarios for review. Funding selection and approval remain with accountable decision-makers and qualified advisers.
Full sources
- Preparing for funding applicationsBusiness.gov.uk · Complete article
- Write a business planGOV.UK · Complete official guidance
- Business plan: what to include in a finance applicationAustralian Banking Association · Complete article