Developing Your Business Investment and Financing Strategy

Investment and Financing Plan Fundamentals

The Investment and Financing Plan is a detailed study covering both the necessary business assets (investments) and their corresponding financial structure (liabilities).

Asset Valuation and Depreciation Methods

Regarding investments, we must detail not only the nature of the assets but also how they will be amortized (depreciated). This involves determining the useful life of the asset for the company and establishing a plan to recover the value lost due to the passage of time and usage.

There are many methods of depreciation, but the most commonly used is the linear method, which assumes the asset wears out uniformly throughout its useful life. However, there are also:

• Progressive methods: These consider the asset to wear out less at the beginning of its life and more toward the end.
• Regressive methods: These consider the asset to wear out more at the beginning of its life than toward the end.

Key Components of Business Assets

When calculating the initial business investment, the following assets must be taken into account:

Fixed Assets and Initial Capital Requirements

• Location: This is often the largest investment. It is only considered an investment (asset) if purchased. If rented, it is an operating expense and not included in the balance sheet assets.
• Facilities and tools
• Machinery
• Elements of transport
• Furniture
• Goodwill: If a transfer fee must be paid, this constitutes "goodwill," an intangible fixed asset.
• Licenses and permits (industrial properties)

Working Capital and Current Assets

• Stock: Inventory investment.
• Available Cash: The minimum necessary funds (in the bank and cash) required to start the activity (current asset).
• Formation Expenses: Investment expenses necessary to constitute the society, such as notary fees, registration fees, etc. (These are typically capitalized as assets).

Financing Strategy and Capital Structure

All these investments must be financed through some means of funding. After calculating all necessary investments, an entrepreneur must determine how to finance them, whether through equity or external financing.

Entrepreneurs can also utilize options like leasing or renting. This avoids the need to acquire the assets outright, thereby saving the significant capital outlay involved in the entire acquisition process.

Sources of Funding for the Financial Plan

To finance the necessary investment, a comprehensive financial plan must be created, including the following sources of funding:

• Equity (PN - Patrimonio Neto / Net Worth)
• Subsidies and Grants
• Loans (Bank Debt)
• Suppliers (Trade Payables)
• Other Liabilities