In­vest­ment plan at a glance

Any business venture is as­so­ci­ated with in­vest­ment. An in­vest­ment concerns a long-term com­mit­ment of financial funds in material and im­ma­ter­i­al assets. In­vest­ments not only affect a company’s fixed assets but in­dir­ectly its current assets as well. In­vest­ment planning is an integral component of strategic business planning. The business plan should consider in­vest­ments as part of finance planning.

In­vest­ments are not only as­so­ci­ated with a high capital ex­pendit­ure and a long-term capital com­mit­ment, but in­vest­ment decisions also have a decisive impact on a company’s cost structure. Before investing money in a business venture, you should therefore closely examine how much capital you need to invest in order to realise the project.

The capital re­quire­ment of an in­vest­ment is de­term­ined as part of an in­vest­ment plan. This provides a basis for in­vest­ment cal­cu­la­tions and the prof­it­ab­il­ity forecast. That means it's necessary to list all costs related to an in­vest­ment in order to assess the business.

In the following, we show you how to prepare an in­vest­ment plan as part of a business plan for strategic or op­er­a­tion­al business planning.

An in­vest­ment plan refers to a table that lists all in­vest­ment items and cor­res­pond­ing costs linked to a par­tic­u­lar in­vest­ment. Here, it’s important to be aware that the in­vest­ment plan only en­com­passes the expenses incurred as one-off costs in con­nec­tion with the in­vest­ment and during the start-up phase.

An overview of the ongoing monthly costs (such as staff costs) is drawn up in the operating expense plan, in­de­pend­ently from the in­vest­ment plan.

The in­vest­ment plan and the operating expense plan sub­sequently form part of the capital re­quire­ments plan.

In business practice, an in­vest­ment plan is always created when an in­vest­ment decision has to be made – usually for one of the following reasons:

• Initial in­vest­ment: Initial in­vest­ment refers to the pro­cure­ment of all op­er­a­tion­ally required assets in con­nec­tion with founding the company.
• Re­place­ment in­vest­ment: Replacing an asset of the company with a new asset is called a re­place­ment in­vest­ment.
• Ra­tion­al­isa­tion in­vest­ment: Ra­tion­al­isa­tion in­vest­ment denotes in­vest­ments that result in a cost saving.
• Expansion in­vest­ment: If the expansion of business op­er­a­tions ne­ces­sit­ates the pro­cure­ment of assets, this is referred to as an expansion in­vest­ment.

As part of a com­pre­hens­ive finance plan, the in­vest­ment plan is not only the basis for the business plan but also a guideline for financing. It thus rep­res­ents a pre­requis­ite for raising capital. You should present the itemisa­tion in a trans­par­ent and struc­tured manner so capital providers like banks or private investors get an overview of all expenses as­so­ci­ated with the in­vest­ment. Generally, you’ll only receive an in­vest­ment loan if your backers are able to see where you’d like to use the borrowed funds.

In an in­vest­ment plan, you draw up a list of all one-off expenses for all in­vest­ment items as­so­ci­ated with an in­vest­ment, including the costs incurred during the start-up phase for advance financing. If it concerns an initial in­vest­ment for in­cor­por­at­ing a business, the in­vest­ment plan will also contain all costs as­so­ci­ated with es­tab­lish­ing the company.

We il­lus­trate the structure of an in­vest­ment plan using the example of an initial in­vest­ment and apply the following outline for this purpose:

1. Capital re­quire­ment for the (formal) in­cor­por­a­tion of the company
2. Capital re­quire­ment for ongoing operating expenses in the start-up phase
3. Capital re­quire­ment for in­vest­ments in fixed assets
4. Capital re­quire­ment for in­vest­ments in current assets
5. Expenses for debt servicing

If your planned in­vest­ment concerns an initial in­vest­ment, you should list the costs of in­cor­por­a­tion in the in­vest­ment plan sep­ar­ately. The capital re­quire­ment for formally es­tab­lish­ing the company includes all expenses incurred in preparing the founding process – for example con­sult­ing costs as well as fees for re­gis­tra­tion, permits or notary cer­ti­fic­a­tions.

Moreover, in­vest­ments are usually as­so­ci­ated with expenses for material and im­ma­ter­i­al assets. A dis­tinc­tion is made between fixed and current assets. Fixed assets are all assets you procure as part of investing for con­tinu­ous use in op­er­a­tions – such as equipment, machines or vehicles as well as im­ma­ter­i­al assets like licenses and patents. Assets such as goods, materials or resources used for disposal, con­sump­tion or pro­cessing – and are therefore held by the company only tem­por­ar­ily – are allocated to current assets.

For in­vest­ments which you wish to fund entirely or partly using borrowed funds, you should also indicate the expenses for interest and repayment in­stal­ments in the in­vest­ment plan.

1. Costs of in­cor­por­a­tion/one-off expenses in the start-up phase
   1. Rent deposit
   2. Legal advisors
   3. Tax advisors
   4. Business advisors
   5. Business re­gis­tra­tion
   6. De­vel­op­ment of a corporate design
   7. Opening event
   8. Opening ad­vert­ising
   9. Website setup
   10. Market in­form­a­tion
   11. Re­gis­tra­tions/approvals
   12. Entry into the com­mer­cial register
   13. Notary
   14. Reserves for start phase, follow-up in­vest­ments and un­fore­seen costs
2. Fixed assets
   1. Patent, license and franchise fees
   2. Plots/property including in­cid­ent­al costs
   3. Pro­duc­tion equipment, machines and tools
   4. Operating and office equipment
   5. Com­mu­nic­a­tion tech­no­logy (PCs, tele­phones, etc.)
   6. Software
   7. Vehicles
3. Current assets
   1. Materials and goods inventory
   2. Raw, auxiliary and operating materials
4. Debt servicing
   1. Interest on founding loan/bank credit
   2. Re­pay­ments

All the above details are added up in the in­vest­ment plan. The final amount of the in­vest­ment plan indicates how much capital you need in the initial phase of the in­vest­ment to implement the planned project.

Make sure that you have specific offers for the in­di­vidu­al cost items. Only then will you ensure that the amount of the necessary in­vest­ment is de­term­ined as thor­oughly as possible.

As part of the finance plan, the in­vest­ment plan is also part of the business plan. It is typically combined with an operating expense plan in the finance plan.

While the in­vest­ment plan only covers one-off costs and ad­di­tion­al expenses during the start-up phase, the operating expense plan provides backers with an overview of the ongoing costs of your company.

Operating expenses include:

• Staff costs (including wage and in­cid­ent­al wage costs) as well as your own salary as managing director for stock cor­por­a­tions (all costs including in­cid­ent­al wage costs)
• If relevant, a man­age­ment wage (to ensure personal living costs for sole pro­pri­et­or­ships and part­ner­ships)
• Rent, tenancy and leasing
• Rent deposit
• Heating, elec­tri­city, water and gas
• Market de­vel­op­ment expenses (ad­vert­ising and marketing)
• Motor vehicle costs
• Travel costs
• Telephone, fax and internet
• Office materials
• Packaging
• Insurance
• Con­tri­bu­tions (to chambers of commerce and pro­fes­sion­al as­so­ci­ations, for example)
• Con­sult­ing (lawyers, business con­sult­ants and tax advisors)
• Other expenses

By adding the in­vest­ment amount de­term­ined in the in­vest­ment plan to the total from the operating expense plan, you obtain the capital re­quire­ments of your business venture.

You show how you cover this capital re­quire­ment in the financing plan – another part of the finance plan. Since in­vest­ment projects are typically funded by a com­bin­a­tion of equity capital, sub­sid­ised loans and bank credit, it is critical that you take interest and re­pay­ments into con­sid­er­a­tion when planning capital re­quire­ments. In­ter­me­di­ate bot­tle­necks can be iden­ti­fied by means of a liquidity forecast.

In addition, it’s important to ensure that all operating costs as well as your cost of living are covered by your company alone following the budgeted start-up phase and that there are no fears of long-term losses. You can calculate whether your in­vest­ment makes financial sense using a prof­it­ab­il­ity forecast, which likewise forms part of the finance plan. If you’d like to assess how your in­vest­ment compares to al­tern­at­ive options, an in­vest­ment appraisal technique such as the net present value method can be helpful.

Please note the legal dis­claim­er relating to this article.