5.2 Liquidity planning

1.       Liquidity planning must first be based on the capital required for investments. The equity capital and the borrowed capital are to be determined. The capital deficit must be determined. The dates for investments etc. must be determined and summarised in a payment plan. 

2.       Next, the planned turnover and the revenues are to be determined from the income statement or the profit and loss account. All disbursements are to be deducted from the revenues.

3.       It must be determined whether the revenues (proceeds) have been received in the own account at the specified time or whether a delay in payment is to be assumed. In the case of payment terms of 30 days, the revenue entry in the liquidity planning must be postponed by this period. This is particularly important when setting up a business, as income may be slow in coming in during the first few weeks. An OP list (open items) is necessary. In the event of delayed payment, several months' revenue should be planned as liquidity credits in the capital requirements planning.

4.       The income is to be compared with the expenses (costs). All costs of the P&L are to be included. It should be noted that depreciation increases liquidity. 

5.       When determining the expenditure of money, it must be determined how high the monthly surpluses and losses are. Surpluses contribute to liquidity, losses have to be financed.

6.       Liquidity can be severely strained in the case of outstanding debts (receivables). Collecting debts through dunning procedures is a costly and unpleasant business. It must be determined how high the outstanding debts can be for a transaction, and liquidity must be kept available for this.

7.       Accounts receivable can be turned into revenue with the help of factoring. With factoring, a company assigns its accounts receivable to a specialised company (factor) and receives a part of the receivables paid out immediately in return. The loss of receivables has an effect on liquidity. Checking suppliers and customers is the best precaution against bad debts.

8.       In order to generate liquidity, the company's own liabilities must be collected. On the other hand, the company can exhaust payment targets itself.

9.       The planning and constant control of liquidity is a matter for the boss. Those who do not have a constant overview of the commercial processes in their company are at high risk.