7 reasons for good cash flow planning

We entrepreneurs are doing business in changed times. First Covid, now the war of aggression in Ukraine. Whether a newly founded start-up or an established mid-sized company – good cash flow planning has never been so vital for survival. Here are the reasons!

1. Reduce the risk of insolvency

Statistics show: more than 80% of all insolvencies are down to inadequate cash flow planning

When the ratio of incoming to outgoing payments is no longer right, insolvency quickly looms. Many companies underestimate the problem, for example by focusing too heavily on their tax advisor’s reports or by using inadequate tools for financial planning.

2. Transparency instead of flying blind

The fact is: financial data is complex, but it does not have to be

Looking at the business analysis report or at the account balance alone often says very little. Smart cash flow or liquidity planning records every movement of money in the company and presents the data both in detail (down to the level of individual entries) and clearly (for example in charts, tables and dashboards). Above all, though, the reports are up to date at all times and you do not have to wait for the tax advisor or the end of the month.

3. Spot payment bottlenecks sooner

Do you know your company’s financial heartbeat?

Monitor changes in your cash position without gaps, analyse seasonal fluctuations in your business model and observe your customers’ payment behaviour. Cash flow planning makes it possible to predict payment bottlenecks earlier and to take measures to safeguard liquidity faster.

4. Increase your cash position

Good cash flow planning pays off in hard cash

Decisive advantages are

• Better receivables management through the open items
• Optimised payment behaviour towards suppliers
• More room for investments, reserves and withdrawals

5. Plan your finances reliably into the future

How will the cash position develop over the next 6, 12 or 24 months?

Plan into the financial future on the basis of past cash flow and make better business decisions

• Planning incoming and outgoing payments
• Setting up different scenarios
• Subsequent plan vs. actual comparison

6. Convince banks and investors

Do you want to convince partners of your business idea?

Or talk to your bank about new financing? A good cash flow plan makes your financial situation transparent and highlights risks and opportunities. That builds trust, and your partners are convinced by your company faster.

7. Take your finances into your own hands

Rely on others for financial planning? Not a good idea …

Tax advisors and the like do take on important tasks when it comes to accounting and annual financial statements – but forward-looking planning, for example integrated financial planning or solid cash flow planning, is something you should take into your own hands. While large companies have been doing this for years, there is a great need for action here among mid-sized businesses.

Photo by Ian Taylor on Unsplash