Checking solvency versus managing liquidity and ensuring solvency: Liquidity planning is used in different ways. In times of crisis, liquidity is planned for the coming weeks and months to determine whether the company is solvent. And it is actively managed.
In long-term corporate planning, however, liquidity is planned for the next two to three years. In this context, liquidity planning is an essential tool for forecasting the development of financial resources. And that is critical to success, as liquidity is vital for every company and a fundamental prerequisite for remaining competitive.
Thinking outside the box: Forward-looking planning secures liquidity
A situation in which a company faces payment bottlenecks or even insolvency rarely happens overnight.
Such a crisis is often apparent long in advance. With forward-looking liquidity planning, you can identify it early, which usually leaves enough room to maneuver. Therefore, proactive liquidity planning acts as an early warning system on the one hand, and creates the necessary transparency to make the right decisions for the future on the other.
Liquidity planning is the result of integrated corporate planning, which is prepared annually. Anyone wishing to use planning as a strategic tool should plan the profit and loss statement, balance sheet, and liquidity at least 24 months in advance.
The advantages of forward-looking liquidity planning:
- A head start through knowledge: Knowing how liquidity will develop in the future gives you the advantage of time. Solid liquidity planning acts as an early warning system. If it sounds an alarm, you have enough room to maneuver, such as holding bank discussions or taking other measures to secure liquidity.
- Building trust through transparency: With liquidity planning, you can build a trusting relationship with your key partners.
- Better decision-making: If you have a liquidity plan, you can run through various worst- and best-case scenarios. For example, how the liquidity situation changes with a planned investment or what happens if payments are delayed. This provides a basis for more informed decisions.
- Improving profitability: Since planning creates maximum transparency, there is no need to hold unnecessary buffers for short-term contingencies. This allows you to take full advantage of the yield curve and benefit from higher interest rates in the long term.
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