In an ideal world, an entrepreneur manages millions of important tasks simultaneously, keeps track of everything in their company, and certainly should be aware of most revenues and payments. However, in reality, due to the immense number of tasks, they can easily overlook the actual account balances in the company's bank accounts. And at the worst moment, either there is no money in the account, or it is blocked. For example, in receivables when a business partner owes money, or in supplies. Unfortunately, neither debts nor supplies can pay taxes or wages :) Therefore, the main task of liquidity planning is to help the business owner avoid payment defaults.
Depending on the complexity and diversity of business activities, liquidity planning can be simple and consist of only a few lines (e.g., for a small business where revenue from the sale of goods is "positive" and expenses for purchases and taxes are "negative") or multi-line (although it is still possible to manually keep accounts in a notebook or in Excel, nowadays it is much more convenient to do this with special programs that use a liquidity planner).
At Puls Project, we are in constant contact with our customers, who repeatedly provide us with tips for intelligent liquidity planning. We want to share the most useful of these tips with you.
Don't kill dreams, but stay realistic
Forecast as conservatively as possible: Don't try to plan super profits (even if you would really like to), but orient yourself to real values.
Precision is the language of professionals
Be sure to enter all inflows and outflows of the company into the cash flow to detect weaknesses on time (or conversely, when the company has enough reserves for development). Even if you are confident that you have all the numbers in your head, using a liquidity planner will help you see the big picture and become aware of things you may have overlooked.
If you foresee a situation in the future where your company could run into payment difficulties, it's better to secure yourself in advance and create the possibility of obtaining external financing. This could be, for example, an advance-arranged credit line with a bank. You can also consider alternative sources of financing if you suddenly need money, as these loans can be granted much faster than traditional banks. And there's really no need to fear them.
If the company has a complex financial structure with many different categories of "positive" and "negative" cash flows, it makes sense to divide the entire cash flow into private cash flows for a separate investment project, a business segment, or even a specific product. Modern liquidity planners can break down payments by expenses, categories, and recurring transactions.
The whole point lies in security
In cash flow, it's not about profitability but the security of the company. If you experience negative cash flow and have no reserves in one or two months, you should consider what strategies and liquidity management tools you can introduce to ensure stability and continuity in your company's financial flows.
Don't expect immediate results. To effectively use liquidity management in business leadership, you should monitor and analyze it continuously. If you notice regular downturns in cash flow, the company can prepare: Increase cash reserves in accounts before a difficult period by reducing expenses in the preceding months.
And the most important thing is to always maintain a positive attitude 🙂