Neo entrepreneurs: the business plan is not a cost, but an asset

When preparing to launch a business, the estimate for a business plan can seem like one of the first expenses to cut: the premises have been identified, the product is convincing, a few potential customers have shown interest and the entrepreneur believes they already know what is needed. In this sequence, the plan often comes at the end, when a bank or a grant call requires it, and is treated as the document needed to obtain money. Yet the moment when it can create the most value is the one before that: before signing a burdensome lease, buying equipment, hiring staff or investing the family’s savings. Its job is to turn an intuition into testable hypotheses and make visible the conditions under which the business can work, including those the founder would rather not face because they are fixated on their “entrepreneurial dream”, in which some mistaken beliefs may lead them off course before they even begin.

Describing the business plan as an asset means recognising this management value: a store of information, reasoning and control tools that can prevent costly mistakes and improve discussions with those financing the venture. It does not mean that the document is automatically an asset to be recorded on the balance sheet: the accounting treatment of the costs incurred requires a separate assessment, under the applicable rules, and does not follow from the usefulness of the plan. Nor is it enough to pay a consultant to get a good result. An elegant document, built on generic data and desired revenues, can offer less protection than an essential model in which every figure has an explanation. The right question therefore concerns the work the plan makes possible and the decisions it helps to take, not the number of pages delivered.

Revenues must come from the reachable market

The first step is to explain who will buy, why they will choose that proposal and through what path they will become a paying customer. Writing that the market is worth millions and that it will be enough to capture a small share of it does not prove the commercial feasibility of a new business. You need to get down to the operational scale: reachable customer base, actual competitors, workable prices, acquisition channels, length of the sales process and ability to deliver the product or service. Verbal interest is not the same as an order; a letter of intent must be read for the commitments it contains; a contract can generate revenues only after certain conditions have been met. Keeping these pieces of evidence separate prevents all opportunities from being turned into certain turnover and allows different degrees of reliability to be assigned to forecasts.

For a service company, for example, turnover can be reconstructed through the number of active professionals, the hours actually billable and the average price achievable, taking into account that customer acquisition, administration and training absorb non-billable time. For a shop, footfall, entries, conversion and average receipt matter; for a small hospitality business, available units, occupancy, prices and seasonality, as well as commissions and per-stay costs. If the plan requires near-immediate saturation or a level of productivity staff cannot sustain, the problem emerges already in the model. The analysis must also cover the cost of sales: how much needs to be spent to acquire a customer, how long it takes to recover that spending and how much margin remains if the customer buys only once.

The break-even point must be compatible with sales capacity

Turnover becomes meaningful when linked to the contribution margin, that is, the part of revenues left after variable costs and used to cover overhead. A purely illustrative example helps explain the mechanism: with annual fixed costs of 60,000 euro and a contribution margin of 30%, operating break-even requires 200,000 euro in revenues, obtained by dividing fixed costs by that percentage margin. If sales reach 300,000 euro, the contribution is 90,000 euro and 30,000 euro remain after fixed costs. The meaning of the result, however, depends on the scope: if fixed costs do not include depreciation, interest and taxes, those 30,000 euro do not represent net profit. The break-even point calculated in this way does not even show that there will be enough cash to repay a loan.

The distinction is crucial because many forecasts improve only by leaving out real costs: the founder’s work is not remunerated, maintenance is postponed, insurance is understated, and personnel costs include salaries but not all related charges. To assess economic sustainability, the value of entrepreneurial labour must also be considered; to measure cash, on the other hand, actual outflows must be represented according to the legal form and remuneration choices, avoiding double counting. In addition, the margin changes with discounts, commissions, waste, returns and sales mix. A business with multiple products cannot apply the margin of its most profitable line to all turnover: it must build an average consistent with what it expects to sell and check whether the break-even volumes are realistically achievable.

The capital required includes the time gap between payments and receipts

The initial investment is only part of the funding need. Machinery, furnishings and software are visible straight away, while the liquidity absorbed by day-to-day operations is easier to overlook. In its essential operational form, working capital links receivables and inventories to payables to suppliers: if amounts to be collected and stock rise without a corresponding increase in the time granted by suppliers, the business must finance the difference. An additional order can therefore be profitable and at the same time absorb cash. The plan must represent advances, actual payment terms, minimum purchases and plausible delays, together with the timetable for salaries, social contributions, taxes and VAT. VAT, when recoverable, may not be an economic cost, but its timing can still affect cash management.

Consider, again as a hypothetical example, a business that regularly invoices 30,000 euro a month and is paid after sixty days: under stable conditions, a simplified estimate of trade receivables is in the region of 60,000 euro, net of VAT and without taking bad debts or seasonality into account. This is not automatically the total funding need, because inventories, operating payables, advances and other items must be added or subtracted, but it makes visible a problem that the income statement alone does not solve. The cash schedule must show when available funds reach their minimum and which resources already obtained cover that point. The liquidity required is linked to the maximum cumulative shortfall before financing and to a justified safety margin; indiscriminately adding losses, investments and working capital risks counting the same outflows twice.

The statements must tell the story of the same business

A complete business plan connects the income statement, balance sheet and projected cash flows. Sales feed revenues, receipts and receivables; purchases become costs, inventories and payables; equipment generates an initial outflow and depreciation spread over time; a loan boosts cash when disbursed, but only the interest is a financial cost, while repayment of principal reduces debt and consumes liquidity. This consistency makes it possible to understand why profit and EBITDA, operating margin before interest, taxes and depreciation, are not cash freely available to spend. A project may appear profitable and still remain fragile if it has to support later investments, tie up resources in receivables or start paying instalments before it has sufficient collections.

The depth of the model should be proportionate to the project. For many new businesses it is reasonable to work on a three-to-five-year horizon, building at least the first year on a monthly basis and extending the detail where start-up and seasonality require it: it is a working criterion, not a universal obligation. A business with uncertain cash receipts can add a weekly cash forecast for the next thirteen weeks, updated as management progresses. Every important assumption should keep its source, date and rationale, distinguishing confirmed quotes, estimates and information still to be validated. The useful output is not only the PDF, but also the editable model, with understandable formulas and a record of assumptions: if a supplier’s price changes or the opening is delayed, the entrepreneur must be able to see which consequences spread to funding needs and debt.

The bank is interested in how the loan will be repaid

For a newly established business, with limited or no accounting history, a documented plan makes it easier to present the business model, the promoters’ experience, the use of resources and the prospective ability to service debt. The EBA guidelines on lending and monitoring assign importance to assessing repayment capacity and forward-looking economic and financial information, according to criteria proportionate to the case. The plan enters into this assessment alongside contributed capital, existing commitments and other information on creditworthiness. It does not oblige the bank to lend and does not replace its checks. Even a guarantee can facilitate the transaction, but it does not turn an activity without sustainable cash flows into an economically sound project.

A useful indicator for discussing repayment is the DSCR (Debt Service Coverage Ratio, in Italian indice di copertura del servizio del debito), which compares the cash flows available for debt service with the principal and interest due in the same period. If, in a simplified example, available cash flow is 40,000 euro and total instalments amount to 32,000 euro, the ratio is 1.25: the theoretical cushion is 8,000 euro. If cash flow falls to 28,000 euro, the ratio becomes 0.875 and the period’s resources do not fully cover debt service. The quality of the calculation depends on the definition of the numerator, taxes, working capital and necessary investments considered, as well as the instalment schedule. There is no single threshold that guarantees credit for all companies and all institutions; a satisfactory annual ratio may also conceal months in which cash is insufficient.

The adverse scenario serves to decide before resources run out

A serious plan must also withstand uncomfortable questions: what happens if opening is delayed, sales grow more slowly, customers pay later or the margin shrinks? In the previous example of 300,000 euro in turnover, a fall to 240,000 euro accompanied by a contribution margin of 23% produces 55,200 euro, not enough to cover the 60,000 euro in fixed costs: the operating result within the scope considered becomes negative by 4,800 euro, before any additional items possibly excluded. This is not a forecast, but a simulation that makes the relationship between volumes and margins easier to understand. Reducing all sales by a conventional percentage is less useful than identifying the plausible events for that business and translating them into coherent economic and financial consequences.

The analysis becomes operational when it assigns a response and a deadline to these events. If orders remain below a threshold, a hire is postponed; if receipts slow down, advances and commercial terms are reviewed; if funding needs exceed available capital, the launch is scaled back or cover is sought before sums are committed. Subsidies and concessional financing must also enter the timetable cautiously, distinguishing application, approval and disbursement: a resource requested is not cash available, and a repayable incentive may require advances. The plan should clarify which expenses are reversible and which bind the business for years. This ability to stop or proceed in phases is a concrete part of its value, because it limits exposure when the evidence does not confirm expectations.

The sensible saving concerns unnecessary complexity

Not every initiative needs an expensive assignment or a long document. A simple sole-trader business can start with a lean plan, provided it is complete on the decisive factors; an industrial investment, a hospitality business or a company with multiple product lines requires more structured analysis. When assessing a quotation, it is important to understand whether it includes market verification, cost reconstruction, an integrated financial model, scenarios and discussion with the entrepreneur, as well as the update process. Artificial intelligence can help organise materials, formulate questions and spot inconsistencies, but it must not invent quotations, potential demand or banking conditions. The founder remains responsible for the assumptions and must know the numbers well enough to explain them without relying on the consultant’s presence.

The work continues after launch, comparing results and forecasts and distinguishing deviations due to timing, volumes, prices and costs. Updating does not mean wiping out the previous plan every month in order to make the forecasts correct after the fact: the original reference must be preserved and the reasons why expectations change must be explained. A business plan also creates value when it leads to starting smaller, postponing an investment or abandoning a project that would require excessive exposure. For the neo entrepreneur, the benefit of planning is measured in more informed decisions and in the resources that remain available when things turn out differently than expected. Before even presenting a business to the bank, it serves to make it understandable to those preparing to build it.