Cash flow planning

Liquidity planning means forecasting all expected incoming and outgoing payments for the coming weeks and months so you can spot bottlenecks early.

Why it's the most important planning of all:

• 82% of all insolvencies are caused by liquidity problems (not lack of profit!)
• A company can be profitable and still go bust
• Example: you have orders worth €100,000, but the customer only pays in 90 days. Your rent and salaries, however, are due NOW.

Structure of a liquidity plan:

Incoming payments:

• Customer payments (when do they REALLY arrive?)
• Loan disbursements
• Grants, tax refunds

Outgoing payments:

• Salaries and social security contributions (fixed monthly)
• Rent, insurance (fixed monthly)
• Supplier invoices (variable)
• Taxes (quarterly in Germany: advance VAT return, tax prepayments)
• Investments

Planning horizons:

• Short term: 4–13 weeks (week by week)
• Medium term: 3–12 months (month by month)
• Long term: 1–3 years (quarter by quarter)

Rule of thumb for the self-employed and families:

• Businesses: always keep at least 3 months of fixed costs as a reserve
• Private households: 3–6 months' net salary as an emergency fund
• Cash buffer = room to act and a good night's sleep