Stress-Free Through Everyday Life with Our Liquidity Planning Template

1. What is liquidity?
2. What are the benefits of liquidity planning?
3. When is liquidity planning needed?
4. How to create a liquidity plan
5. Which tools can help you with liquidity planning?
6. Conclusion: Too few liquid funds can threaten your existence, too many can slow down your business growth

Companies must have liquid funds to settle liabilities to employees, social security funds, tax offices and possibly creditors and to be competitive. Strategic liquidity planning helps you keep an overview at all times. In this article (including a free liquidity planning template), you'll learn the best way to proceed and what you should keep in mind.

What is liquidity?

Liquidity refers to a company having sufficient funds to meet all its payment obligations at any time. These include not only paying bills, but also paying salaries and taxes. If a company is not liquid or insolvent, an insolvency proceeding threatens.

What are the benefits of liquidity planning?

With liquidity planning, companies estimate their financial situation for a fixed period of time. In this process, pending revenues are compared with pending expenditures with regard to their due dates. This results in either a liquidity surplus or a cash squeeze. Liquidity planning has many advantages:

• Existence security: Control over a company's liquidity
• Part of liquidity risk management: Ensuring short-term liabilities are paid
• Information source: Regular (cross-departmental) reporting
• Basis for strategy development: Deriving strategic measures
• Basis for scenario analysis: Creation of action plans for possible scenarios
• Shareholder value: Regular reporting for shareholders
• Creation of new financing resources: Awakening the interest of investors with positive figures

When is liquidity planning needed?

Founders create liquidity plans as part of their business plans (part of the Financial plan) that they hand over to banks and investors. But established companies also need a liquidity plan to be able to take action if necessary. The Chamber of Industry and Commerce (IHK) emphasizes that a liquidity plan is particularly important in times of crisis.

How to create a liquidity plan

Usually, either the finance or the treasury department prepares the liquidity plan. Ideally, they can directly access all necessary data via a system in order to determine positions, amounts and times (e.g. payment terms).

How is the liquidity plan structured?

In the liquidity plan, two sums are compared: payments in and out. You can derive the positive side from your outstanding receivables and (planned) sales. You will find the figures for the sum of your payments in your creditors' accounts payable (creditors, other liabilities and expenses).

Structure of a liquidity plan

Instructions: Step by step to the liquidity plan

1. Step: Determine your in and out payment positions.
2. Step: Determine accounting accounts for the positions.
3. Step: Determine periods.
4. Step: List your income and expenses per period.
5. Step: Determine all cash and bank balances (for values like turnover you have to make forecasts).
6. Step: Correct your forecasted values if necessary.
7. Step: Observe liquidity development and possibly take corrective actions.

What items does a liquidity plan contain?

It depends entirely on your company which items need to appear in your liquidity plan. Criteria are the size of the company, the business activity (e.g. manufacturing company or trading company) and the legal form. Similarly, the amount of the amounts or the weighting of the individual items can also vary.

Inventory

At the beginning of the period, your liquid funds are usually bank and cash balances.

1. Liquid end-of-month inventory (account balance): Bank account amount of available (liquid) funds at the cut-off date
2. Liquid end-of-month inventory (cash): Cash amount of available (liquid) funds at the cut-off date

Receipts (cash inflows):

These positions may apply to your company:

1. Net sales revenue (incoming payments according to bank account): Receipts from the sale of goods or services
2. Receipts from shareholders and private deposits: e.g. shareholder loans and cash deposits
3. VAT payments
4. Other income: Receipts unrelated to the core business activity as well as income from leasing and letting, sale of non-operational assets, elimination of assets, loans, interest receipts and tax refunds
5. Total income

Payments (cash outflows):

Many payments are usually predictable fixed costs and ongoing contracts:

1. Material costs: Payments for the purchase of goods and services.
2. Personnel costs: Wages and salaries, social security contributions, special payments (e.g. assets effecting benefits), employer's liability insurance association contributions and further education costs.
3. Fixed costs: operational expenses, permanent contracts, investments and repayments (e.g. credit, plant, advertising, telecommunications, rent and travel expenses, leasing and vehicle fees or insurance contributions, repair and tax consultancy costs).
4. Taxes and levies: Income tax, corporation tax, trade tax, VAT, input tax.
5. Other expenses: Expenses unrelated to the company's core business.
6. Sum of payments

Completion

1. Liquidity at the end of the period (initial balance + income – expenses)
2. Emergency liquidity

What do you need to keep in mind when making liquidity plans? – 4 helpful tips

1. First liquidity, then profitability

Start-ups and growth companies in particular face major challenges, as salaries and other personnel and material costs often have to be pre-financed. In this case, you should definitely prioritize liquidity to prevent insolvency.

2. Industry and seasonal payment delays

The responsible person should be deeply involved in the topic and be able to correctly assess usual payment delays (e.g. at the turn of the year or with intercultural particularities). Here, calculation with the worst-case scenario can pay off.

3. Times

Don't just focus on the sums of your income or expenses. Also pay very close attention to the times of your payment inflows and outflows. Like some other factors, the details depend on the nature of your business.

4. Appropriate countermeasures

There are many measures you can basically take. Make sure to choose the right one(s). Examples include:

• Negotiations with the bank (e.g. lower the credit rate)
• Negotiations of new payment terms
• Checking cash discount possibilities
• Collection of outstanding receivables through reminders
• Postponing investments
• Sale of fixed assets
• Expense review
• Reducing operating costs (e.g. changing telecommunications providers)
• Looking for investors and business partners
• Planning of short-term investments
• Removal of products from the range
• Increasing sales
• Application for financing or taking out a loan
• Ordering other cost savings

What problems or sources of error can arise with a liquidity plan? 6 typical errors and possible solutions:

Example of liquidity planning

This is what your liquidity planning could look like:
 

Liquidity plan example

Template: Create a liquidity plan with this free Excel template

In Excel, you can create an expandable table for your plan, store formulas and also embed charts. Here you can download your free Excel template for liquidity planning:

Free liquidity plan template

Which tools can help you with liquidity planning?

In principle, liquidity planning in Excel is possible. However, this is full of danger spots: in spreadsheet programs, it's easy to type wrong or unintentionally change stored formulas. This might work for small businesses, but when many transactions need to be considered, planning not only becomes prone to errors, but also quickly gets confusing. In any case, we recommend using software (e.g. from our category Cash Flow Management).

The programs have many other major advantages besides clarity and low error susceptibility. These include interactivity, transparency, and countless interfaces to billing tools and banks. You can always read your liquidity in real time from your dashboard, track account movements, automatically categorize payments, digitize liquidity scenarios, integrate planning logics (e.g. expected incoming payments are automatically recorded), as well as warning systems and reports (e.g. liquidity and performance reports).

You've decided that you need software for your liquidity planning and the only question now is which one you should choose?

Then be sure to take a closer look at our tool recommendations: On OMR reviews you will find a large selection of tools that you can select according to your requirements.

These are our top 10 software solutions for your liquidity planning:

COMMITLY

Agicap

Tidely

flowpilot

FinanzGeek

Adam

Lexoffice

Board

DATEV

Conclusion: Too few liquid funds can threaten your existence, too many can slow down your business growth

Your company should always be liquid and therefore have reserves. Too many reserves, however, can slow you down. Software can help you find the golden mean with as little effort as possible. Still undecided? Be sure to check out our articles on the best liquidity planning software and the best controlling software!