Liquidity planning is an essential part of financial management for companies. It is the foundation used to build a solid financial position and helps to ensure financial stability and growth.
Regardless of their size or sector, companies in Switzerland are faced with numerous financial challenges on a daily basis. From paying employees and suppliers to managing unexpected expenses, running a successful company requires careful financial planning. This is where liquidity planning plays a part in the business plan.
A liquidity plan, which is often called a cashflow forecast or liquidity outlook, is a strategic tool companies can use in their financial management. It is a structured forecast outlining how the liquidity in a company will evolve over time. The projection uses an estimate of revenue and expenditure to create a roadmap for the company to ensure it has sufficient financial resources at all times.
Liquidity planning is not merely a forecast; it also continually monitors the company’s current financial situation. Specifically, it performs the following tasks:
Liquidity is by no means uniform across the company. It can be divided up into different ratios which reflect the different aspects of the company’s financial stability. Although some of these liquid funds can be accessed more quickly than others, ultimately they are not intended to serve as a cushion for unforeseeable events. They are a fixed component of a well-thought-out liquidity plan.
Finally, assets must always be proportionate to liabilities. Here, liabilities are roughly broken down into current and non-current liabilities.
A calculation is used to determine what is known as the liquidity value. A value of 100 percent means that all liabilities can be met with the funds that are available.
Liquidity planning can be done using a spreadsheet or with the help of specialized software that simplifies and speeds up the process. Both methods have their pros and cons. Which one you choose often depends on your company’s individual needs and resources.
Creating a precise liquidity plan can be a challenge, especially if you don’t know what your revenue will be over the next few months. However, there are tried and trusted strategies and methods that help companies to prepare for unexpected events and shore up their financial stability.
Capital requirements, private investments, borrowed capital, accounting rules and payment streams all make it that much more important to have an overview of your liquidity at all times. Without a solid financial and liquidity plan, a company is setting itself up for problems when it comes to paying wages, supplier invoices and loan obligations. What’s more, if a company fails to settle its bills, its suppliers, customers and investors will lose trust in it, putting its long-term relationships at risk.
In the worst case, these payment difficulties and loss of trust could lead to bankruptcy, which, in turn, could trigger a whole slew of consequences.
AXA can help you shore up your financial stability and minimize the risk of bankruptcy. You can go to liquidity workshops, become part of a start-up network or take out insurance that prevents you from having to pay unexpected claims for damages.