Checking whether the company can pay its bills, or steering liquidity and securing solvency: liquidity planning is used in different ways. In times of crisis, liquidity is planned for the coming weeks and months in order to establish whether the company is solvent. And it is steered actively.
In longer term company planning, on the other hand, liquidity is planned for the coming two to three years. Liquidity planning is then an important instrument for forecasting how financial resources will develop. And that is decisive for success. Because liquidity is vital for the survival of every company and a basic requirement for holding your own in competition.
Looking beyond the immediate: forward looking planning secures liquidity
A situation in which a company is struggling to pay or is even insolvent rarely arrives overnight.
Such a crisis often becomes apparent long in advance. And with forward looking liquidity planning you can recognise it early. That usually leaves enough room for manoeuvre. Forward looking liquidity planning therefore acts on the one hand as an early warning system. On the other it creates the transparency needed to take future decisions correctly.
Liquidity planning follows from the integrated company planning that is prepared each year. Anyone who wants to use planning as a strategic instrument should plan the profit and loss account, the balance sheet and liquidity at least 24 months ahead.
The advantages of forward looking liquidity planning:
- An advantage through knowledge: anyone who knows early how liquidity will develop holds the trump card of time. Sound liquidity planning acts as an early warning system. If it sounds the alarm, there is enough room to hold talks with banks, for instance, or to take other measures to secure liquidity.
- A basis of trust through transparency: with liquidity planning you can build a trusting relationship with your important partners.
- Better judgement in decisions: with liquidity planning in place you can play through various worst case and best case scenarios. For instance how the liquidity situation changes with a planned investment, or what happens if payments in and out shift. On that basis better founded decisions can be taken.
- Improved profitability: because the planning creates the greatest possible transparency, there is no need to hold an unnecessary buffer for short term surprises. That lets you make optimal use of the yield curve and benefit from higher interest rates over the longer term.
If you would like an insight into how we implement liquidity planning, you can download the document free of charge and without obligation: https://9149216.fs1.hubspotusercontent-eu1.net/hubfs/9149216/Whitepaper/THE%20MAKED%20TEAM_Whitepaper_Liquidit%C3%A4tsplanung_Teil3.pdf
You can find part 4 of our series here: part 4, process optimisation
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