Article written by Emanuela Modoran – External Relations Expert & EEN Advisor, Măgurele Science Park Association
For SMEs preparing projects under PoCIDIF – Measure 1.1.2 “Increasing the Level of Public-Private Collaboration”, financial analysis is one of the most important components of the application. A project may apply for up to EUR 1.5 million in non-reimbursable funding, but the company must demonstrate that it has the financial capacity to cover not only the part of the investment that is not financed by the grant, but the entire lifecycle of the investment.
In other words, the right question is not only “How much grant funding can we obtain?”, but also “How much funding do we need in order to implement and operate the project safely and sustainably?”
The call documentation explicitly requires applicants to demonstrate their financial capacity to cover their own contribution to eligible expenditure, ineligible expenditure, as well as the operating and maintenance costs of the investment. Moreover, the beneficiary must commit to maintaining the investment and covering the necessary costs throughout the five-year sustainability period.
From the Grant to the Actual Financing Requirement
A common mistake is to build the project exclusively around the maximum available grant. In reality, the beneficiary’s financing requirement may be significantly higher.
For a project seeking the maximum grant of EUR 1.5 million, the following elements should be analysed separately:
- the non-reimbursable funding;
- the beneficiary’s own contribution to eligible expenditure, resulting from the aid intensities applicable to the different activities;
- all ineligible expenditure;
- non-eligible VAT, where applicable;
- temporary liquidity requirements until expenditure is reimbursed;
- operating and maintenance costs after project completion.
This is particularly important because PoCIDIF 1.1.2 projects may combine several categories of aid – for research and development, regional investment, innovation for SMEs, or process and organisational innovation. Therefore, a single funding percentage should not automatically be applied to the entire project budget. The beneficiary’s own contribution must be calculated by activity and expenditure category, according to the applicable State aid regime.
A simplified example: if the targeted grant is EUR 1.5 million, the total project value may reach EUR 2 million, EUR 2.3 million or even more, depending on the structure of the activities and the applicable aid intensities. Ineligible expenditure and the capital required for subsequent operations may need to be added on top of this amount.
Therefore, the value of the grant should not be confused with either the total value of the project or the company’s actual cash requirement.
The Financial Analysis Should Be Built Around Two Scenarios: “Without the Project” and “With the Project”
The financial model and the Business Plan must demonstrate the incremental impact of the investment.
The “without the project” scenario should reflect the company’s realistic development if the PoCIDIF investment were not implemented. This does not automatically mean constant revenues or zero growth. The projections should start from historical financial statements, the existing portfolio, contracts and the actual trend of the company’s activities.
The “with the project” scenario adds the economic impact of the innovative product, service or process developed through the project: additional revenues, but also all the additional costs required to generate those revenues.
This distinction is essential because the evaluation grid calculates incremental operating profit as the difference between the operating profit under the “with the project” scenario and the operating profit under the “without the project” scenario.
Post-Project Revenues Must Be Substantiated, Not “Optimised” for Excel
The financial projection covers a five-year period, and evaluators explicitly check its consistency with the Business Plan, the Funding Application, the project activities and the other relevant documents.
Revenues generated by the investment should therefore be built on the actual commercial model:
estimated number of customers × average price × quantity/licences/units sold, as applicable.
For a software solution, for example, the analysis may distinguish between revenues from licences, subscriptions, implementation, customisation and maintenance. For a technology product, revenues may come from equipment sales, integration, servicing, consumables or related services.
The assumptions should be supported by the market analysis and commercial strategy: market size, potential customers, competitors’ prices, sales pipeline, letters of interest, pilots, existing contracts or other verifiable information.
The documentation explicitly requires revenue and operating expenditure projections to be detailed, sufficiently justified, realistic and based on accurate data and verifiable sources.
Do Not Forget the Investment’s Operating Costs
Another major mistake is to overestimate revenues while underestimating costs.
Once the funding period is completed, significant costs may arise, including technical and commercial staff, energy, cloud and hosting services, software licences, maintenance, servicing, calibration, consumables, insurance, cybersecurity, certifications, marketing, participation in trade fairs, distribution, subcontracting, replacement of components or product updates.
The Business Plan explicitly requires the applicant to detail the cash inflows and outflows included in the financial model.
Therefore, a project forecasting revenues of EUR 1 million per year after completion while including only a few tens of thousands of euros in additional operating costs, without a solid justification, may raise questions during the evaluation.
Cash Flow Is Different from Profit
A company may have a project that is profitable on paper while, at the same time, lacking the liquidity required to implement it.
The analysis must include all eligible and ineligible costs and all sources of financing, both for the investment itself and for its subsequent operation and functioning, including the revenues generated by the project.
The sources used to cover the beneficiary’s own contribution, VAT and ineligible expenditure should therefore be analysed separately, together with any potential timing gaps between the moment payments are made and the moment the expenditure is reimbursed.
Funding sources may include the company’s available cash resources, cash flow generated by its existing operations, shareholders’ contributions or bank financing, as applicable.
The financial analysis must therefore consider liquidity, not only profitability.
Return on Investment Directly Influences the Evaluation Score
A particularly important aspect of the current evaluation grid is the financial return on investment indicator:
RI = PEI / CI × 100
where:
PEI = average incremental operating profit for the three years following project completion;
CI = total project value excluding VAT.
The evaluation grid awards:
| Return on Investment | Score |
| 0.5% ≤ RI ≤ 1% | 1 point |
| 1% < RI ≤ 2% | 3 points |
| RI > 2% | 5 points |
This criterion should be checked before the project is submitted, not after the Business Plan has already been finalised.
For example, for a total investment of EUR 2.3 million excluding VAT, achieving an RI above 2% requires an average annual incremental operating profit of more than EUR 46,000 during the first three years after project completion.
This is not an impossible target, but it should arise naturally from the business model rather than from artificially adjusting the financial projections.
The Three Documents Must Tell the Same Story
The financial analysis should not be prepared separately from the team drafting the project.
There must be a direct link between:
Funding Application → Business Plan → Financial Model
The evaluation grid specifies that evaluators will check the consistency of the information presented in the Business Plan, Funding Application, financial projections and other project documents.
If the Business Plan states that eight employees will be hired to operate the product, their salaries must appear in the financial projections. If the commercial strategy envisages entering three foreign markets, realistic sales, promotion and internationalisation costs should be included. If the product requires cloud services, maintenance or annual licences, these must be reflected in the operating costs.
Similarly, if the financial projections forecast strong revenue growth, this must be explainable through sales volumes, prices and the company’s actual commercialisation capacity.
The Final Test Before Submission
For a project applying for the maximum EUR 1.5 million grant, the financial analysis should provide clear answers to several essential questions:
What is the total cost of the project? How much of it is covered by the grant? How much must the beneficiary contribute? Which costs remain ineligible? How much liquidity will be required during implementation? How much will it cost to operate the investment after project completion? What additional revenues will it generate? What will the incremental profit be? Is the RI above the targeted threshold? And, most importantly, can the company sustain the investment without running into a liquidity shortfall?
The eligibility grid follows precisely this logic: the applicant must demonstrate its capacity to cover its own contribution, ineligible expenditure and operating and maintenance costs, including throughout the sustainability period.
Conclusion
For PoCIDIF 1.1.2, the financial analysis is not an accounting annex to be completed at the end of the project preparation process. It should be developed from the very moment the project budget and activities are designed.
For a grant of up to EUR 1.5 million, applicants must consider three levels simultaneously: the grant, their own contribution, and the actual cash requirement for implementing and operating the investment.
A sound financial projection is not the one showing the highest possible revenues. It is the one that demonstrates, through coherent and verifiable assumptions, that the project can be financed, implemented and economically sustained after the funding period has ended.
#EENcanHelp #PoCIDIF #FinancialAnalysis
Sources:
PoCIDIF PTI Applicant Guide
Annex 1 – Funding Application Template and Completion Instructions
Annex 10 – Business Plan Template
Annex 12 – Eligibility and Contracting Verification Grid
Annex 13 – Technical and Financial Evaluation Grid
