COVID-19 poses a major challenge for the German economy: international supply chains are disrupted, demand is falling across the board and orders are being canceled. We expect a short to medium term market uncertainty, the exact length of which is still unclear. In order to avoid illiquidity or payment shortages, we provide recommendations for short-term liquidity protection for young companies and start-ups.
- Reducing expenses: Avoid all unnecessary expenses or postpone them if possible. Talk to your suppliers, service providers, landlords etc. and ask for options.
- Avoiding hiring: Take some time before you hire someone for a vacancy.
- Changing some positions into short-time work: Make use of the short-time work allowance from the Federal Employment Agency. The federal government recently eased the admission requirements for short-time work benefits. Currently, only 10% of employees have to be affected by the loss of work in order to register for short-time work. Negative working time balances are partially or completely dispensed with. Temporary workers can also receive short-time allowance.
Introducing a solid working capital management
- Incoming payments: Try to get paid for your invoiced services as soon as possible.
- Outgoing payments: Postpone the payment of invoices whenever possible to reduce your funding period. The tax deferrals and tax prepayment adjustments offered by the federal ministry of economics may also help. At the moment, the tax authorities can defer taxes if the collection would be considered unreasonably harsh.
Finding short to medium term funding sources
- ERP-Gründerkredit-Startgeld: The federal ministry of commerce offers unlimited corporate loans. Talk to your bank of choice about short-term loan options e.g. provided by KfW. The "ERP-Gründerkredit-Startgeld" offers up to € 30,000 for operating resources with 80% liability exemption for your local bank.
- ERP-Gründerkredit-Universell: In this case, you can apply for a working capital loan of up to € 200 million with an exemption from liability of up to 80%.
Preparing a short-term liquidity plan
- Planning: Prepare a 13-week liquidity plan, taking into account all foreseeable and planned incoming and outgoing payments.
- Updating: Keep track of all deposits and withdrawals on a weekly basis in order to identify a liquidity shortfall at an early stage.
Conclusion Based on the current situation, we recommend to consider maintaining liquidity a top priority and to take appropriate measures. Close liquidity monitoring, sensible working capital management and the search for external financing options are a few possible steps. We would be happy to support you.
At Trustventure, we advise young companies on financial issues and offer CFO-As-A-Service. Our expertise in questions of corporate finance, planning and controlling creates transparency and security for you and your investors. Get in touch using our contact form or send us an email via email@example.com.