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4.3 Financial planning

4.3.1 Capital appropriation

Every company needs capital. This involves raising capital for operational occasions. These can be:

  • Start-up capital to finance a start-up or the establishment of a company,
  • Capital for financing a business acquisition or business succession,
  • Capital to finance investments,
  • Capital to pre-finance the first stock of goods,
  • capital to finance liquidity.

The capital appropriation must state what capital is needed for. The amount of capital must be calculated and justified. Finally, the raising of capital must ensure that sufficient equity and debt capital is available. 

The inappropriate use of capital is a burden on every company. 

What needs to be financed, for example:

  • Start-up financing: When founding a start-up, a distinction must be made between a) investments before the start-up and b) investments after the start of the business activity, c) reported start-up costs.
  • Business sector: Capital requirements differ significantly between different business sectors and industries. A manufacturing company or a construction firm need significantly more capital than an individual management consultant or sales representative. The type and amount of capital required depends on the industry.
  • Company size: The amount of capital usually depends on the size of the company or the individual business. More capital is needed to start a shop than to start an internet company. 
  • Turnover rate : It indicates how often a company sells goods within a defined period. To achieve an annual turnover of goods of € 120,000, a monthly turnover of € 10,000 is needed 12 times; if the turnover is twice, it is twice as much. If the goods have to be financed in advance, the capital requirement increases accordingly. If the company did not have enough capital for this, business expansion would not be possible. 
  • Payment terms and delivery credits: They act like credit transactions. The longer the payment term, the higher the capital requirement for the seller and the lower the capital requirement for the buyer.