COVID-19: Recommendations for short-term liquidity protection

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 therefore 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.

Maintaining liquidity

  • Reducing expenses: Avoid all unnecessary expenses or postpone them if possible. Talk to your suppliers, service providers, landlords etc. and ask about options.
  • Avoiding hiring: Wait some time before replacing vacancies.
  • Changing some positions into short-time work: Use the short-time work allowance from the Federal Employment Agency. The federal government recently eased the admission requirements for short-time allowance. Now only 10% of employees have to be affected by the loss of work in order to register short-time work. The build-up of negative working time balances is partially or completely waived. Temporary workers can also receive short-time allowance.

Introducing a solid working capital management

  • Incoming payments: Try to have your invoiced services reimbursed as soon as possible.
  • Outgoing payments: Postpone invoices whenever possible to reduce your funding time. The BMWI's tax deferrals and tax prepayment adjustments will help you here. The tax authorities can currently defer taxes if the collection would represent a significant hardship.

Finding short to medium term funding sources

  • ERP-Gründerkredit-Startgeld: The BMWI promises unlimited corporate loans. Talk to your bank about short-term KfW loan options. The ERP-Gründerkredit-Startgeld, for example, offers up to € 125,000 for operating resources and investments with 80% indemnification for your bank.
  • ERP-Gründerkredit-Universell: With an exemption from liability of up to 90%, you can apply for working capital loans up to a credit volume of € 100 million.

Preparing a short-term liquidity plan

  • Planning: Ensure a 13 week liquidity planning taking into account all foreseeable and planned deposits and withdrawals.
  • Updating: Document all incoming and outgoing payments on a weekly basis in order to identify a liquidity shortfall at an early stage and ensure liquidity security.

Conclusion Based on the current situation, we recommend that ensuring solvency is a top priority and that appropriate measures are taken. 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 in this.

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. Reach out to us via our contact form or write to us directly at office@trustventure.de.

Further information:

https://www.bmwi.de/Redaktion/DE/Dossier/coronavirus.html

https://www.kfw.de/KfW-Konzern/Newsroom/Aktuelles/KfW-Corona-Hilfe-Unternehmen.html

https://www.bmwi.de/Redaktion/DE/Dossier/coronavirus.html

https://www.bmas.de/DE/Presse/Meldungen/2020/corona-virus-arbeitsrechtliche-auswirkungen.html

https://www.arbeitsagentur.de/unternehmen/finanziell/kurzarbeitergeld-uebersicht-kurzarbeitergeldformen

https://www.arbeitsagentur.de/unternehmen/finanziell/kurzarbeitergeld-video

https://www.bundesregierung.de/breg-de/themen/coronavirus/bundestag-kurzarbeitergeld-1729626

https://www.foerderdatenbank.de/

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