Template: 13-week liquidity planning

In our last blog post, we presented you with recommendations for short-term liquidity security measures for young companies and start-ups due to the current corona pandemic and its effects. Based on some feedback and inquiries about these recommendations in the course of the last week, we have created a template for a 13-week liquidity planning, which we would like to share with you, as it is particularly important in times of crisis to have a precise overview of your liquidity in order to be able to react accordingly and to avoid underfunding.

Why should you set up a 13-week liquidity plan?

The aim of the analysis is to identify a possible shortfall at an early stage and to be able to react accordingly. No flight blind, just a clear analysis.

According to §15 InsO, the management has an obligation to file for insolvency if insolvency is to be assumed within the following 3 weeks. At the moment, this obligation does not exist under certain requirements, but this should be checked very carefully.

In order to assess solvency, one starts with the current liquidity status. In the event of insolvency, the management must ensure that solvency can be restored with a predominant probability within a period of 21 days. If this is not the case, there is an obligation to file for insolvency immediately.

However, a plan over the period of just 21 days does not provide sufficient transparency concerning the medium-term development. The chances of a rescue of the company and e.g. the preservation of jobs increases enormously if risks are recognized early and suitable measures are taken.

Therefore, a rolling, detailed liquidity planning over 13 weeks is a common instrument for the early detection of possible insolvency. This period of time is easy to plan and allows for an adequate response time in the event of an impending shortfall.

Here you may download our Template for your 13-week liquity planning.

How to use our template:

Step 1: Determination of the financial status: For this purpose, available liquid funds must be compared with short-term liabilities. To do so, due liabilities, account balances, cash balances and available current account lines are entered in tab 1 "Fin_Status". This results in the available liquidity and the cover ratio. It should be noted that receivables are not included due to their possible default probability.

If the financial status is positive, meaning there is a positive amount in the available liquidity, the solvency of the company is at least currently secured. If it is negative, measures to secure liquidity should be taken immediately. However, the financial status does not provide any information about the constant ability to pay. A further analysis is necessary for this.

The cover ratio provides information about the ratio of the available liquidity to the short-term liabilities and should be above 100%. If the cover ratio is below 100%, there is an impending insolvency.

Step 2: Planning the deposits and withdrawals at account level within the next 13 weeks: Next, the relevant data must be entered in tab 3 "Liq_Plan". These are all deposits (lines 7 to 11), all payments (lines 13 to 26), investments (line 31) and loan deposits - or repayments (lines 33 and 34). Possible data sources here are e.g. contracts or open item lists. Please note that we have provided an example chart of accounts. You should adjust the account names according to your individual situation. From this information results the so-called Net cash flow, which shows how the available liquidity changes within the planning week.

In line 41, the available liquidity (positive amount) or shortfall (negative amount) can now be read, which results from the liquidity, taking into account due liabilities and the current account line.

Step 3: Rolling, weekly update: In order to keep track, a weekly data update is necessary. It is important to compare the planned liquidity with the actual liquidity that has actually occurred on a weekly basis and to make appropriate planning adjustments.

If there is a threat of underfunding, appropriate, short-term measures, such as the postponement of invoices or tax deferrals are essential. In the longer term, e.g. working capital measures are to be taken, which, however, take several weeks to carry out. In the case of insufficient internal cash flows, external financing options, e.g. credit institutions or investors may be taken into account.

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 office@trustventure.de.

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